This paper aims to propose a new measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the...

We examine the economic consequences of an interest-bearing design of the Central-Bank Digital Currency (CBDC), and extend the discussion to an open-economy context with trade and capital flows. We use a dynamic stochastic general equilibrium (DSGE) model to simulate a baseline scenario with...

Under mild assumptions, the data indicate that fluctuations in nominal interest rate differentials across currencies are primarily fluctuations in time-varying risk. This finding is an immediate implication of the fact that exchange rates are roughly random walks. If most fluctuations in...

This paper uses event study analysis and synthetic control estimation analysis to explore how the trend of the risk premium changes when a country breaks its exchange rate peg. We perform abnormal return and cumulative abnormal return estimations on daily fluctuations of country spread index,...

This paper assesses the determinants of foreign exchange (FX) reserves in emerging market economies (EMEs). First, it reviews the drivers behind reserve accumulation and the metrics used to evaluate reserve adequacy. We argue that precautionary motives, at least until early 2000s, were the main...

Foreign investors' changing appetite for risk-taking have been shown to be a key determinant of the global financial cycle. Such fluctuations in risk sentiment also correlate with the dynamics of UIP premia, capital flows, and exchange rates. To understand how these risk sentiment changes...

We study the optimal management of capital flows in a small open economy model with financial frictions and multiple policy instruments. The paper reports two main findings. First, both foreign exchange intervention (FXI) and macroprudential polices are tools complementary to the monetary policy...

This paper studies the effect of transport infrastructure on the real exchange rate (RER) and reaches two relatively strong conclusions. First, while the list of robust determinants of the RER is not long, transport infrastructure belongs to that list. Many other potential determinants proposed...

This paper aims at showing heterogeneity in the degree of exchange rate pass-through to import prices in major advanced economies at three different levels: 1) across destination markets; 2) across types of exporters (distinguishing developed economy from emerging economy exporters); and 3) over...

Egypt, Morocco and Tunisia face challenges competing on the global markets, as shown by their relatively low and stagnant export shares. The limited export competitiveness has hampered external demand, growth and employment. Applying, for the first time to North Africa, the stock-flow approach...