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on International Finance |
| By: | Graham Elliott; Elena Pesavento |
| Abstract: | Whilst point estimates for mean reversion in real exchange rates suggest reasonable (but long) half lives to shocks, it still remains uncomfortable that models without any mean reversion at all are often compatible with individual country pair data from the floating period. Studies with data over longer periods find mean reversion, but at the cost of mixing in data from earlier exchange rate arrangements. Pooling the floating period data for a number of countries also finds evidence of mean reversion, but at the expense of potentially mixing in country pairs with and without mean reversion. We examine tests for mean reversion for individual country pairs where greater power against close alternatives is gained through modeling other economic variables with the real exchange rate. Our results are broadly consistent with other methods to improve the power of tests for unit roots in real exchange rates, finding support for the mean reversion hypothesis. |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0502&r=ifn |
| By: | Martin D. D. Evans(Georgetown University and NBER) and Richard K. Lyons(U.C. Berkeley and NBER, Haas School of Business) (Department of Economics, Georgetown University) |
| Abstract: | This paper compares the true, ex-ante forecasting performance of a micro-based model against both a standard macro model and a random walk. In contrast to existing literature, which is focused on longer horizon forecasting, we examine forecasting over horizons from one day to one month (the one-month horizon being where micro and macro analysis begin to overlap). Over our 3-year forecasting sample, we find that the micro-based model consistently out-performs both the random walk and the macro model. Micro-based forecasts account for almost 16 per cent of the sample variance in monthly spot rate changes. These results provide a level of empirical validation as yet unattained by other models. Though our micro-based model out-performs the macro model, this does not imply that past macro analysis has overlooked key fundamentals: our structural interpretation using a fundamentals-based model shows that our findings are consistent with exchange rates being driven by standard fundamentals. Classification-JEL Codes:F3, F4, G1 |
| Keywords: | Exchange rates, forecasting, Meese and Rogoff, microstructure, order flow |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~05-05-01&r=ifn |
| By: | Michael D. Bordo (Department of Economics, Rutgers University); Josef Christl (Oesterreichische Nationalbank, Managing Director); Christian Just (Oesterreichische Nationalbank, European Affaires and International Financial Organizations Division); Harold James (Department of Economics, Princeton University) |
| Date: | 2004–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:92&r=ifn |
| By: | Slavi T. Slavov (Pomona College) |
| Abstract: | Yen-dollar fluctuations increase macroeconomic instability in small economies in East Asia. I investigate the choice of an exchange rate regime for these countries so as to minimize the adverse effects of this volatility. I build a sticky-price dynamic model of a small economy whose trade is invoiced in dollar and yen. First, I show the conditions under which pegging to a tradeweighted basket of the two currencies is the optimal policy for the small economy. Then, I introduce net worth constraints and unhedged dollar borrowing which pull the optimal policy away toward putting a much greater weight on the dollar. |
| Keywords: | East Asia, optimal basket pegs, balance sheet effects, exchange rate regimes |
| JEL: | F4 |
| Date: | 2005–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0501001&r=ifn |
| By: | Zhang, X.; Krug, B.; Reinmoeller, P. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam) |
| Abstract: | This paper attempts to explain how institutions in the reform era of China have evolved by looking into the FDI policies and regulations. As history matters, we don?t look solely into the previous direct stage to the reform era, and rather look into a longer history starting from prior to the 14th century. The study shows that a dimension of time is crucial to understand institutional change in China. Though the initiation of the open-door policy in the reform era is commonly regarded as path-break event, we claim that this institutional change is a path dependent event from a longer historical view. The path takes a zigzag that is shaped by interaction among interested parties: the central government, local governments and economic agents (foreign investors in terms of the open-door policies). The historical study shows that mutual needs and their behaviours influence their attitudes which further influence institutional building. This also further implies how Chinese institutions may evolve in the future and what we should concern more about institutional changes in transitional economies. |
| Keywords: | Attitudes;Institutions;Path dependence;China;FDI policy; |
| Date: | 2005–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30001990&r=ifn |
| By: | Zhang, J.; Jacobs, J.; Witteloostuijn, A. van (Groningen University) |
| Abstract: | Multinational enterprises (MNEs) play a dominant role in the international business (IB) literature. Traditionally, by far the majority of IB studies deal with issues at the micro level of the individual MNE, or at the meso level of a sample of individual MNEs. This paper focuses on a macro-level issue: the impact of MNE behavior through foreign direct investment (FDI) on international trade, and vice versa. In so doing, this study responds to a recent plea for more macro-level studies in IB into the effect of MNE behavior on the macroeconomic performance of countries as a whole, particularly developing and emerging economies. In this way, IB research would inform the heated debate about the pros and cons of globalization, where antiglobalization rhetoric emphasizes the negative consequences of the increased dominance of MNEs for the world at large and the Third World in particular. In the current study, we focus on the largest developing or emerging economy of all: China. Applying sophisticated econometric techniques, we unravel the causality and direction of FDI trade linkages for the Chinese economy in the 1980 2003 period. |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugccs:200413&r=ifn |
| By: | Volker Nocke (Department of Economics, University of Pennsylvania); Stephen Yeaple (Department of Economics, University of Pennsylvania) |
| Abstract: | We develop an assignment theory to analyze the volume and composition of foreign direct investment (FDI). Firms conduct FDI by either engaging in greenfield investment or in cross-border acquisitions. Cross-border acquisitions involve firms trading heterogeneous corporate assets to exploit complementarities, while greenfield FDI involves building a new plant in the foreign market. In equilibrium, greenfield FDI and cross-border acquisitions co-exist, but the composition of FDI between these modes varies with firm and country characteristics. Firms engaging in greenfield investment are systematically more efficient than those engaging in cross-border acquisitions. Furthermore, most FDI takes the form of cross-border acquisitions when factor price differences between countries are small, while greenfield investment plays a more important role for FDI from high-wage into low-wage countries. These results capture important features of the data. |
| Keywords: | Foreign Direct Investment, Mergers, Greenfield, Firm Heterogeneity |
| JEL: | F12 F14 F23 L11 |
| Date: | 2004–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:05-003&r=ifn |