International Currency Portfolios:
This paper develops a theory of international currency portfolios that holds in general equilibrium, and that is therefore not subject to the criticisms directed at the portfolio balance literature of the 1980s. It shows that, under plausible assumptions about fiscal policy, the relationship between...
Gespeichert in:
| 1. Verfasser: | |
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Washington, D.C
International Monetary Fund
2009
|
| Schriftenreihe: | IMF Working Papers
Working Paper No. 09/48 |
| Online-Zugang: | UBW01 UEI01 LCO01 SBR01 UER01 SBG01 UBG01 FAN01 UBT01 FKE01 UBY01 UBA01 FLA01 UBM01 UPA01 UBR01 FHA01 FNU01 BSB01 TUM01 Volltext |
| Zusammenfassung: | This paper develops a theory of international currency portfolios that holds in general equilibrium, and that is therefore not subject to the criticisms directed at the portfolio balance literature of the 1980s. It shows that, under plausible assumptions about fiscal policy, the relationship between the rates of return of different currency bonds is not correctly described by an arbitrage relationship but instead also depends on outstanding bond stocks. Other findings are: (1) There is a monotonically increasing relationship between domestic interest rates and the portfolio share of domestic currency denominated assets. This relationship is steep at low levels of government debt, and almost flat at high levels of government debt. (2) Optimal private sector foreign currency positions are negative, and their size is decreasing in exchange rate volatility. Under volatile exchange rates large negative aggregate net foreign asset positions can only be rationalized by assuming large public sector borrowing from foreign governments. (3) For a baseline economy with zero net foreign assets, open market sales of domestic government debt lead to valuation gains (losses) when the country as a whole has a short (long) position in foreign currency. (4) A fiscal theory of exchange rate determination is compatible with general equilibrium in a two-country world. (5) Equilibria are determinate when both fiscal and monetary policy are passive |
| Beschreibung: | 1 Online-Ressource (35 p) |
| ISBN: | 1451871961 9781451871968 |
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| 520 | 3 | |a This paper develops a theory of international currency portfolios that holds in general equilibrium, and that is therefore not subject to the criticisms directed at the portfolio balance literature of the 1980s. It shows that, under plausible assumptions about fiscal policy, the relationship between the rates of return of different currency bonds is not correctly described by an arbitrage relationship but instead also depends on outstanding bond stocks. Other findings are: (1) There is a monotonically increasing relationship between domestic interest rates and the portfolio share of domestic currency denominated assets. This relationship is steep at low levels of government debt, and almost flat at high levels of government debt. (2) Optimal private sector foreign currency positions are negative, and their size is decreasing in exchange rate volatility. Under volatile exchange rates large negative aggregate net foreign asset positions can only be rationalized by assuming large public sector borrowing from foreign governments. (3) For a baseline economy with zero net foreign assets, open market sales of domestic government debt lead to valuation gains (losses) when the country as a whole has a short (long) position in foreign currency. (4) A fiscal theory of exchange rate determination is compatible with general equilibrium in a two-country world. (5) Equilibria are determinate when both fiscal and monetary policy are passive | |
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| illustrated | Not Illustrated |
| index_date | 2024-07-03T20:13:28Z |
| indexdate | 2024-07-10T09:35:37Z |
| institution | BVB |
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| series2 | IMF Working Papers |
| spelling | Kumhof, Michael Verfasser aut International Currency Portfolios Kumhof, Michael Washington, D.C International Monetary Fund 2009 1 Online-Ressource (35 p) txt rdacontent c rdamedia cr rdacarrier IMF Working Papers Working Paper No. 09/48 This paper develops a theory of international currency portfolios that holds in general equilibrium, and that is therefore not subject to the criticisms directed at the portfolio balance literature of the 1980s. It shows that, under plausible assumptions about fiscal policy, the relationship between the rates of return of different currency bonds is not correctly described by an arbitrage relationship but instead also depends on outstanding bond stocks. Other findings are: (1) There is a monotonically increasing relationship between domestic interest rates and the portfolio share of domestic currency denominated assets. This relationship is steep at low levels of government debt, and almost flat at high levels of government debt. (2) Optimal private sector foreign currency positions are negative, and their size is decreasing in exchange rate volatility. Under volatile exchange rates large negative aggregate net foreign asset positions can only be rationalized by assuming large public sector borrowing from foreign governments. (3) For a baseline economy with zero net foreign assets, open market sales of domestic government debt lead to valuation gains (losses) when the country as a whole has a short (long) position in foreign currency. (4) A fiscal theory of exchange rate determination is compatible with general equilibrium in a two-country world. (5) Equilibria are determinate when both fiscal and monetary policy are passive Online-Ausg http://elibrary.imf.org/view/IMF001/09866-9781451871968/09866-9781451871968/09866-9781451871968.xml Verlag URL des Erstveröffentlichers Volltext |
| spellingShingle | Kumhof, Michael International Currency Portfolios |
| title | International Currency Portfolios |
| title_auth | International Currency Portfolios |
| title_exact_search | International Currency Portfolios |
| title_exact_search_txtP | International Currency Portfolios |
| title_full | International Currency Portfolios Kumhof, Michael |
| title_fullStr | International Currency Portfolios Kumhof, Michael |
| title_full_unstemmed | International Currency Portfolios Kumhof, Michael |
| title_short | International Currency Portfolios |
| title_sort | international currency portfolios |
| url | http://elibrary.imf.org/view/IMF001/09866-9781451871968/09866-9781451871968/09866-9781451871968.xml |
| work_keys_str_mv | AT kumhofmichael internationalcurrencyportfolios |