Starting from the stylized fact that the Swiss franc is a safe haven currency, this paper focuses on the determinants of the Swiss franc during the lower bound regime from September 2011 to January 2015. We describe the Swiss franc as a function of global market risk fundamentals and find that the macroeconomic model outlined by Krugman (1991) describes the EUR/CHF exchange rate well during this particular time. We show that, as predicted by Krugman’s model, the sole expectation that the Swiss National Bank would prevent the Swiss franc from appreciating beyond 1.20 to the euro muted the sensitivity of EUR/CHF to global market risk. An important assumption for the model prediction to hold is that the central bank’s commitment to the exchange rate target is credible. We thus use EUR/CHF option prices together with the global market risk fundamental to assess the credibility of the lower bound. We find that the only true credibility issue was in November 2014. After November 2014 the Swiss National Bank could convince markets anew from its target-zone policy and suspend the lower bound unexpectedly a few weeks later.
从瑞郎作为避险货币这一固定事实出发，本文重点研究了2011年9月至2015年1月瑞郎汇率下限机制期间的决定因素。我们将瑞士法郎描述为全球市场风险基本面的函数，并发现克鲁格曼(1991)概述的宏观经济模型很好地描述了这一特定时期的欧元/瑞郎汇率。我们表明，正如克鲁格曼模型所预测的那样，瑞士国家银行将阻止瑞士法郎对欧元升值超过1.20的唯一预期减弱了欧元/瑞郎对全球市场风险的敏感性。该模型预测的一个重要假设是，央行对汇率目标的承诺是可信的。因此，我们使用欧元/瑞郎期权价格和全球市场风险基本面来评估下限的可信度。我们发现，唯一真正的可信度问题发生在2014年11月。2014年11月之后，瑞士央行(Swiss National Bank)可能会再次说服市场放弃其目标区政策，并在几周后出人意料地暂停利率下限。
{"title":"The Swiss Franc's Honeymoon","authors":"Rahel Studer-Suter, Alexandra Janssen","doi":"10.2139/ssrn.2479941","DOIUrl":"https://doi.org/10.2139/ssrn.2479941","url":null,"abstract":"Starting from the stylized fact that the Swiss franc is a safe haven currency, this paper focuses on the determinants of the Swiss franc during the lower bound regime from September 2011 to January 2015. We describe the Swiss franc as a function of global market risk fundamentals and find that the macroeconomic model outlined by Krugman (1991) describes the EUR/CHF exchange rate well during this particular time. We show that, as predicted by Krugman’s model, the sole expectation that the Swiss National Bank would prevent the Swiss franc from appreciating beyond 1.20 to the euro muted the sensitivity of EUR/CHF to global market risk. An important assumption for the model prediction to hold is that the central bank’s commitment to the exchange rate target is credible. We thus use EUR/CHF option prices together with the global market risk fundamental to assess the credibility of the lower bound. We find that the only true credibility issue was in November 2014. After November 2014 the Swiss National Bank could convince markets anew from its target-zone policy and suspend the lower bound unexpectedly a few weeks later.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75260127","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 research study examines the behavior of currency rate, long memory features, and long-term stability in the returns of thirteen Asia-Pacific currencies (AUD, CNY, HKD, INR, IDR, JPY, KRW, MYR, NZD, PHP, SGD, TWD, and THB) against USD over a period of fourteen years (from 2nd January 2001 to 10th December 2014). The study uses descriptive statistics, ADF and PP test, Hurst exponent co-integration model, and figures to investigate the normality, stationarity, long memory features, and long-term relationship stability of sample currencies against USD. This study determined the values of the Hurst Exponent for the first window with 1,000 observations and the second window with 2,500 observations. This study provides significant evidence for the presence of long memory features and relationship stability. The findings of this study would help investors, exchange rate trade policy makers, exporters, and importers to make decisions on the investment, export, and import of goods and services.
{"title":"Long Memory Features and Relationship Stability of Asia-Pacific Currencies Against USD","authors":"A. Sankarkumar, M. Selvam, Marxia Oli Sigo","doi":"10.15208/BEH.2017.07","DOIUrl":"https://doi.org/10.15208/BEH.2017.07","url":null,"abstract":"This research study examines the behavior of currency rate, long memory features, and long-term stability in the returns of thirteen Asia-Pacific currencies (AUD, CNY, HKD, INR, IDR, JPY, KRW, MYR, NZD, PHP, SGD, TWD, and THB) against USD over a period of fourteen years (from 2nd January 2001 to 10th December 2014). The study uses descriptive statistics, ADF and PP test, Hurst exponent co-integration model, and figures to investigate the normality, stationarity, long memory features, and long-term relationship stability of sample currencies against USD. This study determined the values of the Hurst Exponent for the first window with 1,000 observations and the second window with 2,500 observations. This study provides significant evidence for the presence of long memory features and relationship stability. The findings of this study would help investors, exchange rate trade policy makers, exporters, and importers to make decisions on the investment, export, and import of goods and services.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75888348","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 : 2016-12-22DOI: 10.18045/ZBEFRI.2016.1.393
P. Petrović
The goal of our research is testing of presence and background examination of Backus–Smith puzzle in the EU. The research is based on the technique of econometric analysis of panel data, i.e. on the estimation of one-way/two-way error component models and models without effects. The results of the research have shown that: (a) there is serious evidence on presence of the Backus–Smith puzzle in the EU, (b) its background comprises both nominal exchange rate and inflation differential, and (c) empirical data rejects complete risk sharing assumption strongly and decisively, but this does not explain the Backus–Smith puzzle. The basic conclusion of our research is that nominal exchange rate movements are not the only source of Backus–Smith puzzle in the EU, as is the case in OECD members states.
{"title":"Backus–Smith Puzzle and the European Union: It's Not Just the Nominal Exchange Rate","authors":"P. Petrović","doi":"10.18045/ZBEFRI.2016.1.393","DOIUrl":"https://doi.org/10.18045/ZBEFRI.2016.1.393","url":null,"abstract":"The goal of our research is testing of presence and background examination of Backus–Smith puzzle in the EU. The research is based on the technique of econometric analysis of panel data, i.e. on the estimation of one-way/two-way error component models and models without effects. The results of the research have shown that: (a) there is serious evidence on presence of the Backus–Smith puzzle in the EU, (b) its background comprises both nominal exchange rate and inflation differential, and (c) empirical data rejects complete risk sharing assumption strongly and decisively, but this does not explain the Backus–Smith puzzle. The basic conclusion of our research is that nominal exchange rate movements are not the only source of Backus–Smith puzzle in the EU, as is the case in OECD members states.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80496396","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 rate of mean-reversion in a country's real exchange rate (RER) is a key indicator to consider when discussing exchange rate policies in any country. In practice, this rate - known as the half-life - is commonly calculated using price aggregates, such as the consumer price index (CPI). I demonstrate that using a CPI to estimate the RER mostly yields higher persistence estimates than a RER based on the disaggregated formula suggested by PPP theory. Using a novel dataset with a daily frequency of price collection and an identical set of products from multiple countries, I find that the half-life for a RER derived from price aggregates is on average 37% higher than a RER generated from product-level information. Until now estimates suggested that the rate of mean-reversion was unreasonably slow, ranging from a minimum of 2 to 5 years. The sample used in this paper indicates that this rate is in fact typically less than 1 year. The dataset has been gathered from online sources and includes food, fuel, and electronic products.
{"title":"The Perils of Using Aggregate Data in Real Exchange Rate Estimations","authors":"M. I. Bertolotto","doi":"10.2139/ssrn.2882339","DOIUrl":"https://doi.org/10.2139/ssrn.2882339","url":null,"abstract":"The rate of mean-reversion in a country's real exchange rate (RER) is a key indicator to consider when discussing exchange rate policies in any country. In practice, this rate - known as the half-life - is commonly calculated using price aggregates, such as the consumer price index (CPI). I demonstrate that using a CPI to estimate the RER mostly yields higher persistence estimates than a RER based on the disaggregated formula suggested by PPP theory. Using a novel dataset with a daily frequency of price collection and an identical set of products from multiple countries, I find that the half-life for a RER derived from price aggregates is on average 37% higher than a RER generated from product-level information. Until now estimates suggested that the rate of mean-reversion was unreasonably slow, ranging from a minimum of 2 to 5 years. The sample used in this paper indicates that this rate is in fact typically less than 1 year. The dataset has been gathered from online sources and includes food, fuel, and electronic products.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82501008","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}
Modern presidents exploit ambiguities in the constitution to justify exercising power far beyond those envisioned by the Founders. Recent work demonstrates that the American public poorly constrains the expansion of executive unilateral authority. We argue that when the public and the constitution do not check executive power, the economic consequences of executive orders might. Using a unique dataset that combines leading economic indicators with data from the U.S. Policy Agendas Project, we show that executive orders have an immediate impact on the exchange rate of the U.S. dollar. Executive orders on topics that do not seem directly associated with the economy also influence the value of the U.S. currency. When considering unilateral action, the modern president must consider the economic impact of these decisions.
{"title":"The Power of Money: How the U.S. Dollar Constrains Executive Actions","authors":"Stefano Corsini Concha, Matthew R. Miles","doi":"10.2139/ssrn.2825282","DOIUrl":"https://doi.org/10.2139/ssrn.2825282","url":null,"abstract":"Modern presidents exploit ambiguities in the constitution to justify exercising power far beyond those envisioned by the Founders. Recent work demonstrates that the American public poorly constrains the expansion of executive unilateral authority. We argue that when the public and the constitution do not check executive power, the economic consequences of executive orders might. Using a unique dataset that combines leading economic indicators with data from the U.S. Policy Agendas Project, we show that executive orders have an immediate impact on the exchange rate of the U.S. dollar. Executive orders on topics that do not seem directly associated with the economy also influence the value of the U.S. currency. When considering unilateral action, the modern president must consider the economic impact of these decisions.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82768332","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}
China has maintained a closed capital account to the private sector and channeled capital flows through the public sector by foreign exchange interventions. This paper presents an open economy model that incorporates this capital account policy configuration in order to study whether foreign exchange interventions can improve welfare in the presence of capital controls, compared to an open capital account. Furthermore, I analyze how these interventions affect the conduct of monetary policy. I find that optimal interventions improve welfare by strategically managing the terms of trade. In the presence of domestic nominal rigidity, interventions increase welfare even if monetary policy is set optimally. I find monetary policy effectively eliminates domestic price distortions, while foreign exchange interventions efficiently correct terms-of-trade externalities.
{"title":"Foreign Exchange Interventions, Capital Controls and Monetary Policy: The Case of China","authors":"Hao Jin","doi":"10.2139/ssrn.2697223","DOIUrl":"https://doi.org/10.2139/ssrn.2697223","url":null,"abstract":"China has maintained a closed capital account to the private sector and channeled capital flows through the public sector by foreign exchange interventions. This paper presents an open economy model that incorporates this capital account policy configuration in order to study whether foreign exchange interventions can improve welfare in the presence of capital controls, compared to an open capital account. Furthermore, I analyze how these interventions affect the conduct of monetary policy. I find that optimal interventions improve welfare by strategically managing the terms of trade. In the presence of domestic nominal rigidity, interventions increase welfare even if monetary policy is set optimally. I find monetary policy effectively eliminates domestic price distortions, while foreign exchange interventions efficiently correct terms-of-trade externalities.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91418370","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 balance of payments for 2015 shows an increasing surplus in the current account balance, which has resulted from the shrinking deficit in the balance of services, the investment income balance and wages, coupled with the decreasing surplus in the trade balance. The accelerated weakening of the ruble in real terms against the national currencies of the developing countries during some prolonged periods of time in 2014–2015 was triggered by the mounting geopolitical risks and the plummeting oil prices.
{"title":"The Exchange Rate of the Ruble is Close to the Equilibrium Point","authors":"A. Bozhechkova, P. Trunin","doi":"10.2139/SSRN.2757575","DOIUrl":"https://doi.org/10.2139/SSRN.2757575","url":null,"abstract":"The balance of payments for 2015 shows an increasing surplus in the current account balance, which has resulted from the shrinking deficit in the balance of services, the investment income balance and wages, coupled with the decreasing surplus in the trade balance. The accelerated weakening of the ruble in real terms against the national currencies of the developing countries during some prolonged periods of time in 2014–2015 was triggered by the mounting geopolitical risks and the plummeting oil prices.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2016-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81846748","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}
Convertible currencies are defined as currencies that are readily bought, sold, and converted without the need for permission from a central bank or Government entity. Most major currencies are fully convertible; i.e. they can be traded freely without restriction and with no permission required. The easy convertibility of currency is a relatively recent development and is in part attributable to the growth of the international trading markets and the FOREX markets in particular. Historically, movement away from the gold exchange standard once in common usage has led to more and more convertible currencies becoming available on the market. Because the value of currencies is established in comparison to each other, rather than measured against a real commodity like gold or silver, the ready trade of currencies can offer investors an opportunity for profit.
{"title":"Full Convertibility of the Indian Rupee: Exchange Rates and Feasibility","authors":"Sankalp Jain","doi":"10.2139/ssrn.2808406","DOIUrl":"https://doi.org/10.2139/ssrn.2808406","url":null,"abstract":"Convertible currencies are defined as currencies that are readily bought, sold, and converted without the need for permission from a central bank or Government entity. Most major currencies are fully convertible; i.e. they can be traded freely without restriction and with no permission required. The easy convertibility of currency is a relatively recent development and is in part attributable to the growth of the international trading markets and the FOREX markets in particular. Historically, movement away from the gold exchange standard once in common usage has led to more and more convertible currencies becoming available on the market. Because the value of currencies is established in comparison to each other, rather than measured against a real commodity like gold or silver, the ready trade of currencies can offer investors an opportunity for profit.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2015-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85332679","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 period from 1914 to 1935 in the United States is unique in that it was the only time that both privately issued bank notes (national bank notes) and central-bank-issued bank notes (Federal Reserve notes) were simultaneously in circulation. This paper describes some lessons relevant to e-money from the U.S. experience during this period. It argues that Federal Reserve notes were not issued to be a superior currency to national bank notes. Rather, they were issued to enable the Federal Reserve System to act as a lender of last resort in times of financial stress. It also argues that the reason eventually to eliminate national bank notes was that they were potentially a source of bank reserves. As such, they could have threatened the Federal Reserve System's control of the reserves of the banking system and thereby the Fed's control of monetary policy.
{"title":"Government and Private E-Money-Like Systems: Federal Reserve Notes and National Bank Notes","authors":"Warren E. Weber","doi":"10.2139/ssrn.2692846","DOIUrl":"https://doi.org/10.2139/ssrn.2692846","url":null,"abstract":"The period from 1914 to 1935 in the United States is unique in that it was the only time that both privately issued bank notes (national bank notes) and central-bank-issued bank notes (Federal Reserve notes) were simultaneously in circulation. This paper describes some lessons relevant to e-money from the U.S. experience during this period. It argues that Federal Reserve notes were not issued to be a superior currency to national bank notes. Rather, they were issued to enable the Federal Reserve System to act as a lender of last resort in times of financial stress. It also argues that the reason eventually to eliminate national bank notes was that they were potentially a source of bank reserves. As such, they could have threatened the Federal Reserve System's control of the reserves of the banking system and thereby the Fed's control of monetary policy.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2015-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83952386","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}
Though Bitcoin currently enjoys a healthy niche, the aspirations of many in the project are grander: to supplant the existing regime of fiat currencies with cryptocurrencies, and to do so outside of normal political channels. Its primary practical obstacle is its purchasing power volatility, arising from a rigid money stock in the face of wide swings in demand. Nevertheless, the historical example of gold, another (much more successful) money commodity with a more or less rigid supply, illuminates the institutional prerequisites for purchasing power stability, economic efficiency, and sustained growth – namely a market of financial intermediaries whose liabilities denominated in the base money themselves circulate as media of exchange. This paper discusses potential benefits and hurdles to establishing financial intermediation in cryptocurrency, as well as the possibility of managing the money supply to create a stable purchasing power cryptocurrency without the need for intermediation at all. Such schemes ultimately require an existing market of intermediaries in order to provide any benefits, the emergence of which governments are for the moment well-positioned to prevent.
{"title":"Cryptocurrency and the Problem of Intermediation","authors":"Cameron Harwick","doi":"10.2139/ssrn.2523771","DOIUrl":"https://doi.org/10.2139/ssrn.2523771","url":null,"abstract":"Though Bitcoin currently enjoys a healthy niche, the aspirations of many in the project are grander: to supplant the existing regime of fiat currencies with cryptocurrencies, and to do so outside of normal political channels. Its primary practical obstacle is its purchasing power volatility, arising from a rigid money stock in the face of wide swings in demand. Nevertheless, the historical example of gold, another (much more successful) money commodity with a more or less rigid supply, illuminates the institutional prerequisites for purchasing power stability, economic efficiency, and sustained growth – namely a market of financial intermediaries whose liabilities denominated in the base money themselves circulate as media of exchange. This paper discusses potential benefits and hurdles to establishing financial intermediation in cryptocurrency, as well as the possibility of managing the money supply to create a stable purchasing power cryptocurrency without the need for intermediation at all. Such schemes ultimately require an existing market of intermediaries in order to provide any benefits, the emergence of which governments are for the moment well-positioned to prevent.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2015-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85412091","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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