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Summary
Today’s global economy is deeply interconnected and the movement of money and investments between countries is more complex than ever. Conventional models of exchange rate determination usually focus on the direct financial connections linking any two economies. However, this approach overlooks the broader network of financial connections linking multiple economies together. Put differently, many economies are connected directly and indirectly through a web of financial intermediaries, which channel capital across borders in ways that can significantly impact exchange rate changes.
It is therefore important to consider how indirect financial connections arising from the movement of capital through third-party countries can affect exchange rate fluctuations in response to trade shocks. By answering this question, we provide novel evidence on exchange rate dynamics, which is crucial for policymakers, firms, and investors operating in a highly interconnected world.
About the speaker
Pasquale Della Corte is Professor of Finance at Imperial College London and a Research Fellow at the Centre for Economic Policy Research (CEPR). Prior to joining Imperial College, Pasquale was an Assistant Professor of Finance at the University of Warwick and held visiting research positions at the Bank of England, CEMFI, City University of Hong Kong, Einaudi Institute for Economics and Finance, Federal Reserve Bank of St. Louis, Norges Bank, Hong Kong Institute for Monetary Research, and Washington University in St. Louis.
