The dollar exchange rate as a global risk factor: evidence from investment

Exchange rate fluctuations influence economic activity not only via the standard trade channel, but also through a financial channel, which operates through the impact of exchange rate fluctuations on borrowers’ balance sheets and lenders’ risk-taking capacity. The paper explores the “triangular” relationship between (i) the strength of the US dollar, (ii) cross-border bank flows and (iii) real investment.

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The Voting Machine and a Different Kind of Bubble

Ben Graham, the father of value investing, once said of the stock market, “In the short run, the market is a voting machine but in the long run it is a weighing machine.” To Graham the market was like a popularity contest. Investors “vote” for a stock out of considered enthusiasm for its prospects. Results however are determined in the long run as profits are “weighed” year after year and intrinsic value is revealed.

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Behaving responsibly in a low interest rate environment – a central banker’s perspective

The growth trend has been declining in many mature economies not just since the crisis, but for several decades. This slowdown in growth has led to lower long-term interest rates. The structural causes of this trend of slowing growth is a subject of controversy among specialists. Demographic and technological developments are mentioned, as are the effects of the financial cycle, which may be out of sync with the business cycles. I do not want to pre-empt this ongoing discussion. Instead, I would like to focus on two issues, which in the current context are very relevant from a monetary policy perspective – regardless of the structural causes underlying the weak economic growth.

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Looming debt problem in China

The International Monetary Fund (IMF) released a report in which it increased its forecast for China’s GDP growth by 0.3 percentage points to 6.5 percent. However, the IMF report also warned that “slow progress in addressing corporate debt” posed a risk to the forecast. China’s claims to be over the worst of its corporate debt problem seem to be wishful thinking. One thing is certain: The debt problem is real; it’s a drag on growth; and policies so far have not gotten rid of it.

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