publication . Report . Preprint . 2014

Currency Manipulation

Weithing Zhang; Thomas Mertens; Tarek Hassan;
Open Access
  • Published: 01 Jan 2014
  • Publisher: National Bureau of Economic Research
Abstract
Many central banks manage the stochastic behavior of their currencies' exchange rates by imposing pegs relative to a target currency. We study the effects of such currency manipulation in a multi-country model of exchange rate determination with endogenous capital accumulation. We find that the imposition of an exchange rate peg relative to a given target currency increases the volatility of consumption in the target country and decreases the volatility of the target currency's exchange rate relative to all other currencies in the world. In addition, currency pegs affect the formation of capital across sectors and countries. For example, an economically smaller ...
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