IMF paper tests portfolio rebalancing impact on exchange rates
A working paper published by the International Monetary Fund in August identifies a link between rebalancing of cross-border equity portfolios between the US and Thailand and the exchange rate of the Thai baht.
The authors, Jacob Gyntelberg, Mico Loretan and Tientip Subhanij, study a "novel and so far unused" data set of foreign exchange transactions and capital flows to the Thai stock market in 2005 and 2006. The paper finds net inflows of capital are positively correlated with an appreciation
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