Exchange rates' adjustments in booms and busts

The European Central Bank has published a study looking at the relationship between boom-bust episodes in asset prices over the past two decades and exchange rates.

The research finds rate adjustments are correlated with macroeconomic imbalances and balance sheet problems.

Internal adjustment is more common when financial vulnerabilities, excess demand and competitiveness loss remain relatively contained in the boom period of the economic cycle.

During the bust phase, internal adjusters

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