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Exchange Rates and External Adjustment:
Does Financial Globalization Matter?
Philip R. Lane and Gian Maria Milesi-Ferretti
IIIS Discussion Paper No. 129
Abstract
This paper addresses the implications of financial globalization for exchange rate behavior. We highlight two dimensions: first, a wider dispersion in net foreign asset positions implies stronger long-term trends in real exchange rates; second, the impact of currency movements on net external wealth is an increasing function of the scale of international balance sheets.