ARTICLE
TITLE

Diversified Currency Holdings and Exchange Rate Dynamics

SUMMARY

In this study, we incorporate diversified currency holdings into the New Open Economy Macroeconomics (NOEM) model to explore the issue of exchange rates dynamics. The findings show that exchange rate overshooting occurs when diversified currency holdings are included in a two-country dynamic optimizing NOEM model, and the extent of the overshoot depends on the level of diversified currency holdings. Regarding welfare analysis, an expansionary monetary policy of the home country increases domestic welfare. Also, we find that current account plays an important role in the effect of monetary policy on exchange rates, the increase in the domestic money supply stimulates domestic consumption expenditure through the effects of current account improvements, resulting in exchange rate appreciation.Keywords: Diversified Currency Holdings; Exchange Rate Dynamics; Micro-foundationsJEL Classifications: F31; F41

PAGES
pp. 678 - 689
COLLECTIONS
Economy

 Articles related

Katiya Nahda,Azaria Lionara Rahmadana    

This paper aims to analyze whether firm diversification affects firm leverage in developing countries. This research model is based on the agency theory view that focuses on diversification in leverage through good governance mechanisms. The data comes f... see more


Andi Asirah    

The risk will always be there in any investment, whether real assets and financial assets (except deposits and other risk-free investment). One way that can be done to reduce the total risk of the portfolio in such a way, by dividing the funds into a col... see more


DYAH NIRMALAWATI TAURUSIANINGSIH    

The theme of the research is "Banks and Financial Institutions".This research was conducted to analyse the impact of asset diversification on bank to its market value. By using 11 banks which are categorized as banks that have core capital more than 500 ... see more


Jerzy Korzeniewski    

When investors start to use statistical methods to optimise their stock market investment decisions, one of fundamental problems is constructing a well-diversified portfolio consisting of a moderate number of positions. Among a multitude of methods appli... see more


Bartlomiej Krzeczewski    

The main aim of this article is to verify whether the companies operating in Polish healthcare industry could be included into the group of so called defensive companies. The value of such companies during recession does not decline or the declines are s... see more