We establish the nature of the dynamics of the exchange rate in a two country model with heterogenous firms a la Abadir and Talmain (2002).
我们通过Abadir和Talmain(2002)建立了具有异质企业的两国模型中汇率动态的性质。
{"title":"Two-Country Model and Foreign Exchange Dynamics","authors":"G. Talmain","doi":"10.2139/ssrn.3140312","DOIUrl":"https://doi.org/10.2139/ssrn.3140312","url":null,"abstract":"We establish the nature of the dynamics of the exchange rate in a two country model with heterogenous firms a la Abadir and Talmain (2002).","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117188082","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We use the notion of local Holder regularity to investigate the roughness of the pattern of EUR/USD exchange rate process as well as the corresponding investor sentiment dynamic process. Specifically, we use the pointwise Holder exponent to measure the local Holder regularity of a multifractional process. This application extends the increment ratio method to estimate the pointwise Holder exponent of multifractional Brownian motion function. Our testing and comparison results show that both the exchange rate and the sentiment proxy's local Holder regularities are time-varying and are more homogeneous during crises periods. More importantly, in contrast to the optimistic sentiment, the roughness of the pessimistic sentiment dynamic process displays only slightly higher similarity to that of EUR/USD exchange rate. These results suggest that the EUR/USD exchange rate process and the pessimistic sentiment dynamic process share a common pattern of smoothness, which implies that they share a similar "memory" pattern.
{"title":"Do Sentiment and Exchange Rate Share Memories? An Application of Multifractional Process Modeling","authors":"Yanyan Yang, Qidi Peng","doi":"10.2139/ssrn.3050354","DOIUrl":"https://doi.org/10.2139/ssrn.3050354","url":null,"abstract":"We use the notion of local Holder regularity to investigate the roughness of the pattern of EUR/USD exchange rate process as well as the corresponding investor sentiment dynamic process. Specifically, we use the pointwise Holder exponent to measure the local Holder regularity of a multifractional process. This application extends the increment ratio method to estimate the pointwise Holder exponent of multifractional Brownian motion function. Our testing and comparison results show that both the exchange rate and the sentiment proxy's local Holder regularities are time-varying and are more homogeneous during crises periods. More importantly, in contrast to the optimistic sentiment, the roughness of the pessimistic sentiment dynamic process displays only slightly higher similarity to that of EUR/USD exchange rate. These results suggest that the EUR/USD exchange rate process and the pessimistic sentiment dynamic process share a common pattern of smoothness, which implies that they share a similar \"memory\" pattern.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128966469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The purchasing power parity (PPP) puzzle refers to the inability to reconcile the high short-run volatility of exchange rates with the glacial speed at which deviations from parity seem to damp out. Despite this, there is strong evidence of the long-run relationship between exchange rates and international price differentials. More recently, the alternative notion of non-linear mean reversion dynamics of rates is attracting substantial attention: as a consequence of various adjustment costs, there is a sizeable buffer region within which exchange rates can move independently of prices, generating persistent deviations from parity. This study seeks to integrate the idea of this “inaction band” with trade costs. When deviations fall within the band, movements in rates are close to a random walk; but when the threshold of the band is crossed, arbitrage causes movements back toward the band. To test this approach, we use a large number of disaggregated and highly tradable agricultural products over time in a large number of countries. We find some evidence in favour of the approach.
{"title":"Exchange Rates, Prices and Trade Costs","authors":"Long Hai Vo","doi":"10.2139/ssrn.3038601","DOIUrl":"https://doi.org/10.2139/ssrn.3038601","url":null,"abstract":"The purchasing power parity (PPP) puzzle refers to the inability to reconcile the high short-run volatility of exchange rates with the glacial speed at which deviations from parity seem to damp out. Despite this, there is strong evidence of the long-run relationship between exchange rates and international price differentials. More recently, the alternative notion of non-linear mean reversion dynamics of rates is attracting substantial attention: as a consequence of various adjustment costs, there is a sizeable buffer region within which exchange rates can move independently of prices, generating persistent deviations from parity. This study seeks to integrate the idea of this “inaction band” with trade costs. When deviations fall within the band, movements in rates are close to a random walk; but when the threshold of the band is crossed, arbitrage causes movements back toward the band. To test this approach, we use a large number of disaggregated and highly tradable agricultural products over time in a large number of countries. We find some evidence in favour of the approach.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132994170","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2017-09-01DOI: 10.5089/9781484320617.001
Zineddine Alla, Raphael A. Espinoza, A. Ghosh
We develop an open economy New Keynesian Model with foreign exchange intervention in the presence of a financial accelerator mechanism. We obtain closed-form solutions for the optimal interest rate policy and FX intervention under discretionary policy, in the face of shocks to risk appetite in international capital markets. The solution shows that FX intervention can help reduce the volatility of the economy and mitigate the welfare losses associated with such shocks. We also show that, when the financial accelerator is strong, the risk of multiple equilibria (self-fulfilling currency and inflation movements) is high. We determine the conditions under which indeterminacy can occur and highlight how the use of FX intervention reinforces the central bank’s credibility and limits the risk of multiple equilibria.
{"title":"FX Intervention in the New Keynesian Model","authors":"Zineddine Alla, Raphael A. Espinoza, A. Ghosh","doi":"10.5089/9781484320617.001","DOIUrl":"https://doi.org/10.5089/9781484320617.001","url":null,"abstract":"We develop an open economy New Keynesian Model with foreign exchange intervention in the presence of a financial accelerator mechanism. We obtain closed-form solutions for the optimal interest rate policy and FX intervention under discretionary policy, in the face of shocks to risk appetite in international capital markets. The solution shows that FX intervention can help reduce the volatility of the economy and mitigate the welfare losses associated with such shocks. We also show that, when the financial accelerator is strong, the risk of multiple equilibria (self-fulfilling currency and inflation movements) is high. We determine the conditions under which indeterminacy can occur and highlight how the use of FX intervention reinforces the central bank’s credibility and limits the risk of multiple equilibria.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129431804","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This is the first paper to explore the effects of perceived corruption on the FX market. It finds that the currencies of countries perceived to suffer from high levels of corruption generate statistically significantly lower returns than the currencies of countries perceived to have low levels of corruption. Moreover, the portfolio spread is highly correlated with NBER recessions and U.S. consumption growth of nondurable goods. Interestingly, stochastic discount factor model analysis reveals that the portfolio spread is useful for pricing the cross section of currency returns, even when controlling for standard FX risk factors.
{"title":"Corruption, Carry Trades, and the Cross Section of Currency Returns","authors":"Klaus Grobys, Jari-Pekka Heinonen","doi":"10.2139/ssrn.2961743","DOIUrl":"https://doi.org/10.2139/ssrn.2961743","url":null,"abstract":"This is the first paper to explore the effects of perceived corruption on the FX market. It finds that the currencies of countries perceived to suffer from high levels of corruption generate statistically significantly lower returns than the currencies of countries perceived to have low levels of corruption. Moreover, the portfolio spread is highly correlated with NBER recessions and U.S. consumption growth of nondurable goods. Interestingly, stochastic discount factor model analysis reveals that the portfolio spread is useful for pricing the cross section of currency returns, even when controlling for standard FX risk factors.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130399108","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study seeks evidence supporting the existence of market efficiency and exchange rate sensitivity on stock prices in the Johannesburg stock exchange (JSE). The sample includes the daily price indices of all securities listed on the JSE, and the exchange rate of the USD/Rand for the period since January 2000 to December 2004. The results from the unit root test, the ADF test and the causality test at the Granger sense provide evidence that the Johannesburg stock exchange (JSE) is informationally efficient. It has a long run comovement with exchange rate, and long run equilibrium or steady state. Hence, in JSE there is a strong possibility that foreign direct investors and forex market traders cannot influence and gain abnormal extra benefits by using exchange rate mechanism or by using exchange rate to forecast stock prices in the market. So, JSE is semi-strong form efficient. Through cointegration test, this paper gives more insight on the concept of market efficiency and the reliability of the results. These results are important to security analysts, investors, and security regulatory exchange bodies in policy making decision to improve the market conditions
{"title":"The Relationships between Exchange Rates and Stock Prices: Empirical Investigation from Johannesburg Stock Exchange","authors":"M. Alam, G. Uddin, Khan M.R. Taufique","doi":"10.31219/osf.io/fvdqc","DOIUrl":"https://doi.org/10.31219/osf.io/fvdqc","url":null,"abstract":"This study seeks evidence supporting the existence of market efficiency and exchange rate sensitivity on stock prices in the Johannesburg stock exchange (JSE). The sample includes the daily price indices of all securities listed on the JSE, and the exchange rate of the USD/Rand for the period since January 2000 to December 2004. The results from the unit root test, the ADF test and the causality test at the Granger sense provide evidence that the Johannesburg stock exchange (JSE) is informationally efficient. It has a long run comovement with exchange rate, and long run equilibrium or steady state. Hence, in JSE there is a strong possibility that foreign direct investors and forex market traders cannot influence and gain abnormal extra benefits by using exchange rate mechanism or by using exchange rate to forecast stock prices in the market. So, JSE is semi-strong form efficient. Through cointegration test, this paper gives more insight on the concept of market efficiency and the reliability of the results. These results are important to security analysts, investors, and security regulatory exchange bodies in policy making decision to improve the market conditions","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134414102","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Real exchange rates are highly volatile and persistent. I provide a novel structural explanation for these facts using a model with dispersed information among firms. When producers face strategic complementarities in price-setting, uncertainty about competitors' beliefs results in sluggish price adjustment that can generate large and long-lived real exchange rate movements. I estimate the model using data from the US and Euro Area, and show that it successfully explains the unconditional volatility and persistence of the real exchange rate. The model also accounts for the persistent and hump-shaped real exchange rate behavior conditional on nominal disturbances documented by a structural VAR. About 50% of this persistence is due to the inertial dynamics of higher-order beliefs.
{"title":"Information Frictions and Real Exchange Rate Dynamics","authors":"Giacomo Candian","doi":"10.2139/ssrn.2897629","DOIUrl":"https://doi.org/10.2139/ssrn.2897629","url":null,"abstract":"Real exchange rates are highly volatile and persistent. I provide a novel structural explanation for these facts using a model with dispersed information among firms. When producers face strategic complementarities in price-setting, uncertainty about competitors' beliefs results in sluggish price adjustment that can generate large and long-lived real exchange rate movements. I estimate the model using data from the US and Euro Area, and show that it successfully explains the unconditional volatility and persistence of the real exchange rate. The model also accounts for the persistent and hump-shaped real exchange rate behavior conditional on nominal disturbances documented by a structural VAR. About 50% of this persistence is due to the inertial dynamics of higher-order beliefs.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"211 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132868504","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite Krugman's (1991) model being a benchmark for modelling target zones, empirical support has been sparse due to the subtle non-linear relationship between the observable exchange rate and underlying unobservable fundamental. This paper provides an alternative approach to derive explicit exchange rate dynamics by approximating a quadratic relationship between the exchange rate and fundamental through a power-series method. The exchange rate dynamics with a parametric class of drift terms of the stochastic fundamental including constant-trend, symmetric and asymmetric mean-reverting forces regarding how central banks intervene are ready for direct empirical tests. The empirical results demonstrate that the derived dynamics following a mean-reverting square-root or double square-root processes adequately fits the exchange rate data of various target-zone systems including the Exchange Rate Mechanism. The model parameters of the exchange rate dynamics under the asymmetric mean-reverting fundamental are shown to be associated with realignment of the currencies' target zones.
{"title":"Can Exchange Rate Dynamics in Krugman's Target-Zone Model Be Directly Tested?","authors":"C. Hui, C. Lo, P. Chau","doi":"10.2139/ssrn.2875630","DOIUrl":"https://doi.org/10.2139/ssrn.2875630","url":null,"abstract":"Despite Krugman's (1991) model being a benchmark for modelling target zones, empirical support has been sparse due to the subtle non-linear relationship between the observable exchange rate and underlying unobservable fundamental. This paper provides an alternative approach to derive explicit exchange rate dynamics by approximating a quadratic relationship between the exchange rate and fundamental through a power-series method. The exchange rate dynamics with a parametric class of drift terms of the stochastic fundamental including constant-trend, symmetric and asymmetric mean-reverting forces regarding how central banks intervene are ready for direct empirical tests. The empirical results demonstrate that the derived dynamics following a mean-reverting square-root or double square-root processes adequately fits the exchange rate data of various target-zone systems including the Exchange Rate Mechanism. The model parameters of the exchange rate dynamics under the asymmetric mean-reverting fundamental are shown to be associated with realignment of the currencies' target zones.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"87 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133066707","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With public interest in Bitcoin and other virtual currencies continuing to grow, the question of whether virtual currencies are regulated at the Federal level has arisen. The Commodity Futures Trading Commission, in particular, has been aggressive in asserting its regulatory authority over a broad swath of activities and transactions involving virtual currencies. In doing so, the Commodity Futures Trading Commission appears to have taken the position that virtual currency is a commodity and not, for the Commission's regulatory purposes, a currency. This paper analyzes the Commodity Futures Trading Commission's position with respect to virtual currency and whether it is appropriate for the Commodity Futures Trading Commission to treat virtual currency as a commodity or a currency.
{"title":"Virtual Currency, Not a Currency?","authors":"Gary E. Kalbaugh","doi":"10.2139/SSRN.2770523","DOIUrl":"https://doi.org/10.2139/SSRN.2770523","url":null,"abstract":"With public interest in Bitcoin and other virtual currencies continuing to grow, the question of whether virtual currencies are regulated at the Federal level has arisen. The Commodity Futures Trading Commission, in particular, has been aggressive in asserting its regulatory authority over a broad swath of activities and transactions involving virtual currencies. In doing so, the Commodity Futures Trading Commission appears to have taken the position that virtual currency is a commodity and not, for the Commission's regulatory purposes, a currency. This paper analyzes the Commodity Futures Trading Commission's position with respect to virtual currency and whether it is appropriate for the Commodity Futures Trading Commission to treat virtual currency as a commodity or a currency.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"268 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121983459","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With an emphasis on government intervention that hinders market forces in currency movements, this paper presents a nuanced investigation of the degree and dynamics of flexibility in China's exchange rate regime. A high-frequency data model is developed to more accurately detect the extent to which the Chinese currency is market-driven. This indicator is then utilized in a Markov switching model to examine shifts in RMB regime flexibility. The results suggest a moderate increase in exchange rate flexibility since the 2005 reform. Additionally, two switching states are captured, and possible driving factors are discussed.
{"title":"Exchange Rate Flexibility in China: Measurement, Regime Shifts and Driving Forces of Change","authors":"R. Dixon, Zhichao Zhang, Yang Dai","doi":"10.1111/roie.12226","DOIUrl":"https://doi.org/10.1111/roie.12226","url":null,"abstract":"With an emphasis on government intervention that hinders market forces in currency movements, this paper presents a nuanced investigation of the degree and dynamics of flexibility in China's exchange rate regime. A high-frequency data model is developed to more accurately detect the extent to which the Chinese currency is market-driven. This indicator is then utilized in a Markov switching model to examine shifts in RMB regime flexibility. The results suggest a moderate increase in exchange rate flexibility since the 2005 reform. Additionally, two switching states are captured, and possible driving factors are discussed.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"76 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125923799","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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