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Tag Archives: Exchange Rate

The behavior of the nominal exchange rate between the Brazilian Real and the dollar in 2024

By Nathalie Marins, Ricardo Summa & Daniel Consul (Guest bloggers)Currency devaluations can disrupt developing economies by raising import costs and food prices, which in turn reduces real wages. This impact is particularly detrimental to lower-income households, which typically allocate a substantial portion of their income to essential goods. Consequently, when the local currency weakens, governments encounter increased political pressure due to rising prices that erode purchasing...

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Exchange Rate Arrangements: Fix, Float, or Manage?

Updated version of a textbook chapter on exchange rate arrangements. It is for undergraduate use. From the abstract:The paper tries to provide a concise summary of the main debates on exchange rate arrangements. It a simple taxonomy of exchange rate arrangements, fixed, flexible and managed, and a brief analysis of the main debates about their advantages and disadvantages. It emphasizes the different policy objectives of mainstream and heterodox schools of thought, suggesting that they tend...

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Gene Frieda — China’s Difficult Balancing Act

China needs to keep growth high enough to maintain social stability, but also must preserve external stability via the renminbi’s exchange rate. How China manages its currency during its economic policy shift could have important global consequences. China is not sovereign in its currency since it pegs to the dollar. Currency sovereignty requires floating the rate whereas as peg sets a fixed rate. This means that China domestic policy is constrained by have to manage the exchange rate...

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More on currency crises and the euro crisis

I wrote a while ago about currency crises (see here). There I suggested that classical-Keynesian or post-Keynesian views on currency crises invert the causality between fiscal and balance of payments problems in a currency crisis. Currency crises are not caused by excessive fiscal spending financed by monetary emissions, which would lead to inflation, and eventually after a run on the currency and depletion of reserves to a devaluation, but on current account problems.There two key problems...

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