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Exchange Rates and Monetary Spillovers



Type:   Article
Titre:   Exchange Rates and Monetary Spillovers
Auteur(s):   Plantin, Guillaume - Département d'économie (Auteur)
Shin, Hyun Song - Princeton University (Auteur)
In:   Theoretical Economics
Date de publication:   2018-05
Éditeur:   Bank for International Settlements
Volume:   13
Numéro:   2
Pages:   637-666  p.
ISSN:   19336837
DOI:   10.3982/TE2669
Mots-clés:   [en] Currency appreciation, Capital flows, Global games
JEL:   C7,  E5,  F4
Résumé:   [en] When do flexible exchange rates prevent monetary and financial conditions from spilling over across currencies? We examine a model in which international investors strategically supply capital to a small inflation‐targeting economy with flexible exchange rates. For some combination of parameters, the unique equilibrium exhibits the observed empirical feature of prolonged episodes of capital inflows and appreciation of the domestic currency, followed by reversals where capital outflows go hand‐in‐hand with currency depreciation, a rise in domestic interest rates, and inflationary pressure. Arbitrarily small shocks to global financial conditions suffice to trigger these dynamics.


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