Thursday, March 25, 2010

Exchange Rate Valuation

Menzie Chinn (Professor of Public Affairs and Economics at the University of Wisconsin, Madison) has a nice roundup of exchange rate valuation approaches, with the pros and cons of each. Worth a read if you’re interested in the subject (as I am).


  1. bro ur tots on d EURO....will the block break?

  2. I honestly don't think so, there's too much political capital invested in the Euro for a breakup to happen anytime soon. It would take a lot more pressure in the core countries for that to happen, say for instance if Germany and France are on divergent economic growth paths, with different fiscal policy objectives - that's the lesson of the first ERM breakup in 1993-94. All the trouble is on the periphery.

    What I think might happen is that the ECB will probably need to be more accomodative (which won't make the Germans happy), and any rescue package will have strings attached a'la the IMF - that gets rid of the moral hazard problem. Also, the debt crisis poses a considerable setback to expansion into Eastern Europe, even if those countries are in better shape than Greece. But the bloc itself will survive.