Weber, SebastianWyplosz, Charles2012-03-192012-03-192009-09-01https://hdl.handle.net/10986/4250Nearly two years after the onset of the financial crises, many central banks have brought their policy interest rates down to, or close to zero. Various governments have seen their budget deficits soar. Both policies have affected exchange rates, partly through market expectations. With a majority of exchange rates officially floating, exchange rate movements do not necessarily reflect official decisions as was the case in the 1930s. Yet, also in the 2008 crisis, authorities have directly intervened in the foreign exchange market, sometimes in order to defend a falling currency but in other instances with the aim to limit appreciation pressure, akin of competitive devaluations. This paper documents the exchange rate interventions during the height of the 2008/09 financial crisis and identifies the countries which have particular high incentives to intervene in the foreign exchange market to competitively devalue their currency. While various countries had increased incentives to devalue, we find that direct exchange rate interventions have been rather limited and contagion of devaluation has been restricted to one regionally contained case. However, sharp market-driven exchange rate movements have reshaped competitive positions. It appears that these movements have so far not seriously disrupted global trade. After all, a world crisis is likely to require widespread exchange rate adjustments as different countries are affected in different ways and have different capacities to weather the shocks.CC BY 3.0 IGOBANKING SYSTEMSBLACK MARKETSBUDGET DEFICITSBUFFERCAPITAL ACCOUNTCAPITAL CONTROLSCAPITAL FLIGHTCAPITAL MOVEMENTSCAPITAL OUTFLOWCENTRAL BANKCENTRAL BANK POLICYCENTRAL BANKSCOMMODITYCOMPETITIVE DEVALUATIONSCOMPETITIVE EXCHANGE RATECOMPETITIVE EXCHANGE RATESCOMPETITIVENESSCOMPLEX INSTRUMENTCONVENTIONAL INSTRUMENTCREDIT EXPANSIONCREDIT FACILITYCURRENCYCURRENCY EARNINGSCURRENCY PEGCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT POSITIONCURRENT ACCOUNT SURPLUSCURRENT ACCOUNT SURPLUSESDEBT BURDENSDEBT INTERESTDEBT LEVELDEBT LEVELSDEBT RATIODEBTSDEFLATIONDEMAND FOR CREDITDEPRECIATIONDEPRECIATIONSDEPRESSIONDEPRESSIONSDEVALUATIONDEVELOPING COUNTRIESDISINFLATIONDISTRIBUTIONAL EFFECTSDOMESTIC BANKINGDOMESTIC CONSUMPTIONECONOMETRIC ESTIMATESECONOMIC FORECASTINGECONOMIC OUTLOOKEFFECTIVE EXCHANGE RATEELASTICITYEMERGING MARKETSEMERGING-MARKETEQUILIBRIUMEQUILIBRIUM LEVELSEQUITY INVESTMENTEURO ZONEEXCHANGE RATEEXCHANGE RATE ARRANGEMENTSEXCHANGE RATE BANDEXCHANGE RATE DEVALUATIONSEXCHANGE RATE FLOATSEXCHANGE RATE FLUCTUATIONSEXCHANGE RATE INTERVENTIONEXCHANGE RATE INTERVENTIONSEXCHANGE RATE MISALIGNMENTEXCHANGE RATE MOVEMENTSEXCHANGE RATE POLICIESEXCHANGE RATE POLICYEXCHANGE RATE REGIMESEXCHANGE RATE STABILITYEXCHANGE RATESEXPANSIONARY FISCAL POLICYEXPANSIONARY POLICIESEXPENDITURESEXPLICIT EXCHANGE RATEEXPORT GOODSEXPORT MARKETEXPORT MARKETSEXPORT REVENUESEXPORTEREXPORTERSEXTERNAL BALANCEEXTERNAL COMPETITIVENESSEXTERNAL POSITIONEXTERNAL POSITIONSEXTERNAL TRADEFINANCIAL ARCHITECTUREFINANCIAL CAPITALFINANCIAL CENTREFINANCIAL CRISESFINANCIAL CRISISFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SECTORFINANCIAL SYSTEMSFISCAL POLICIESFISCAL POLICYFIXED EXCHANGE RATESFLEXIBLE EXCHANGE RATEFLEXIBLE EXCHANGE RATE REGIMEFLEXIBLE EXCHANGE RATESFLOATERFOREIGN ASSETFOREIGN ASSET POSITIONFOREIGN ASSETSFOREIGN BORROWINGFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN CURRENCY REVENUESFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETFOREIGN EXCHANGE RESERVESFOREIGN LIABILITIESFOREIGN LIABILITYFOREIGN RESERVESGLOBAL CURRENT ACCOUNT IMBALANCESGLOBAL IMBALANCESGLOBAL OUTPUTGLOBAL TRADEGOLDGOLD STANDARDGOVERNMENT CONSUMPTIONGROWTH RATEHIGH INFLATIONHISTORY OF EXCHANGE RATEHOLDINGIMPORTSINDUSTRIAL COUNTRIESINFLATIONINFLATION FORECASTSINFLATION RATEINFLATION RATESINSTRUMENTINTEREST RATEINTEREST RATE DIFFERENTIALSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL INVESTORSINTERNATIONAL MONETARY SYSTEMINTERNATIONAL MONEYINTERNATIONAL TRADELIQUIDATIONLIQUIDITYLOCAL CURRENCYLOSS OF COMPETITIVENESSMACROECONOMIC POLICYMARKET COMPETITIONMARKET COUNTRIESMARKET EXPECTATIONSMARKET FORCESMARKET PRESSUREMARKET SHAREMISALIGNMENTSMONETARY EXPANSIONMONETARY POLICIESMONETARY POLICYNOMINAL EXCHANGE RATENOMINAL EXCHANGE RATESNOMINAL INTEREST RATEOPEN ECONOMIESOUTPUTOUTPUT DECLINEOVERVALUATIONPEGPOLICY RESPONSESPOLITICAL CONSIDERATIONSPOLITICAL ECONOMYPOSITIVE EXTERNALITIESPOVERTY REDUCTIONPROTECTIONISMPUBLIC DEBTREAL EXCHANGE RATEREAL EXCHANGE RATE MISALIGNMENTSREAL EXCHANGE RATESREAL INTERESTREAL INTEREST RATESRECESSIONREPAYMENTRESERVEROBUSTNESS CHECKSEIZURESLOWDOWNSMALL COUNTRIESSTANDARD DEVIATIONSSURPLUS COUNTRIESSURPLUSESTOTAL EXPORTSTOTAL OUTPUTTRADABLE GOODTRADE BALANCETRADE PATTERNTRADE PATTERNSTRADE PROTECTIONTRADE SHARESTRADE SURPLUSESTRADINGTRADING PARTNERSTRANSACTIONUNCERTAINTYVOLATILITYVOLATILITY IN EXCHANGE RATEWEIGHTSWORLD MARKETWorld Bank10.1596/1813-9450-5059