Tag Archive: current account

Italian Euro Exit: Why it Might Come in some Years and Why it Will Help the Euro Zone and Italy

Italy has three options: 1. exit the euro zone and devalue the currency; 2. remain in the euro zone and devalue salaries. 3. go for Japan-like decades-long slow growth with stagnating wages, but also with falling inflation and (positive news!) falling bond yields.

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Ex-Post FX Evaluation: Is the Swiss Capital Account Able to Neutralise the Persistent Current Account Surpluses?

(post written originally in March 2013) We reckon that the Swiss National Bank (SNB) will have issues maintaining the EUR/CHF floor in the longer term, because the expected yields on Swiss investments abroad will not be sufficiently higher than the yield on investments in Switzerland. Because of this insufficient risk-reward relationship, outflows in the capital account of the Swiss balance of payments will not cover the persistent Swiss current...

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Rising Sight Deposits at SNB Means Rising SNB Debt

Money creation and sight deposits may have two points of view: 1. The central bank creates money - i.e. the SNB decides to increase sight deposits when it does currency interventions 2. Commercial banks create money - inflows in CHF on Swiss bank accounts make those banks increase their "sight deposits at the SNB. If inflows in CHF are higher than outflows then CHF must rise, unless the central bank does currency interventions. We will present...

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(1) What Determines FX Rates?

The effects of so-called “currency wars” and other central bank actions are small compared to the long-term impact made by these five catalysts, which include credit cycles, trade balance, differences in economic growth, and more.

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(1.2) Explaining price movements in FX rates

We indicate the main factors that influence FX rates in the longer term. We explain the movements of currencies based on these factors.

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(2) FX Theory: Purchasing Power Parity

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power.

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(2.5) Real Effective Exchange Rate, Swiss Franc, Yen and Renminbi

The weighted average of country's currency relative to index or basket of other major currencies adjusted for inflation. We explain the Real Effective Exchange Rate for the Franc, the Yen and Renmimbi

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(5) The Balance of Payments Model

The Balance of Payments is the sum of current and capital account. The Balance of Payments model states that a currency appreciate when the Balance of Payments is positive. We give an explanation in around 400 words, that clarifies the relationships.

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(5.2) FX Rates, the Balance of Payments Model and Central Bank Interventions

We will apply the balance of payments model for determining FX rate movements and FX interventions by central banks.

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(5.4) The Relationship between Current Accounts and Savings

Private savings finance public deficit and current account surpluses. Important for understanding the euro crisis and the drivers of government bond yields.

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(6) FX Theory: Carry Trade and Reverse Carry Trade

This page discusses two closely related concepts: the carry trade and the reverse carry trade.

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(6.1) FX Theory: The relationship between Current Accounts Surpluses and the Carry Trade

The EUR/USD is going on its longest winning streak for a long time. Since May 27, it has improved from 1.2850 to 1.3396 and is approaching 1.34. What are the reasons?

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Swiss Balance of Payments 2014, Q1-Q3 and Implications on CHF



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What Drives Government Bond Yields, Part2: Emerging Markets and Recent Discussions

Two additional criteria important for Emerging Markets: High foreign debt, a weak net investment position and a current account deficit increases government bond yields.

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7d) Richard Koo’s and other Sector Balances

A list of long-term sector balances and related provided by Nomura's research institute and its chief economist Richard Koo.

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History of the Swiss Balance of Payments, 1985-2013



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How Long Will the U.S. Recovery Last? A Reminder: The False Japanese Recovery in 1998/1999



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