nep-ifn New Economics Papers
on International Finance
Issue of 2005‒04‒09
three papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Structural Breaks in Volatility: Evidence for the OECD Real Exchange Rates By Amalia Morales Zumaquero; Simón Sosvilla Rivero
  2. The feasibility of a fixed exchange rate regime for new EU-members: evidence from real exchange rates By Candelon,Bertrand; Kool,Clemens; Raabe,Katharina; Veen,Tom,van
  3. Deflation and the International Great Depression: A Productivity Puzzle By Harold L. Cole; Lee E. Ohanian; Ron Leung

  1. By: Amalia Morales Zumaquero (Universidad de Málaga); Simón Sosvilla Rivero (FEDEA y Universidad Complutense de Madrid)
    Abstract: This paper analyses whether volatility changes in the bilateral and effective real exchange rates of the OECD industrial countries are associated with a specific nominal exchange rate regime. To that end, we examine the real exchange rate behaviour during the 1960-2003 period, therefore covering both the Bretton Woods system of fixed exchange rates and adoption of generalised floating exchange rates from 1973. We make use of an econometric methodology based on the Hansen (1997)'s approximation to the p-values of the supreme, exponential and average statistics developed by Andrews (1993) and Andrews and Ploberger (1994). This methodology allows us to obtain a profile of p-values and to delimit periods of stability and instability in the variance of real exchange rates. Results suggest that there is evidence in favour of the non-neutrality of nominal exchange rate regime regarding real exchange rate volatility.
    Keywords: Exchange rate regimes, real exchange rate, volatility
    JEL: F31 F33 F41
    Date: 2005
  2. By: Candelon,Bertrand; Kool,Clemens; Raabe,Katharina; Veen,Tom,van (METEOR)
    Abstract: In this paper, we estimate fundamental bilateral real exchange rates for a group of eight accession countries using a panel-cointegration approach for the period 1993-2003. We document a significant positive link between productivity levels and the corresponding real exchange rate levels. Future rises in productivity cannot be excluded on the basis of either our own analysis or the literature as a whole. Consequently, inflation pressure and real exchange rate appreciation in the accession countries probably remain a fact of life in the near future. The extent to which this is a problem for a fixed nominal exchange rate regime is hard to determine. Price dynamics in the accession countries are still quite flexible to accommodate substantial real exchange rate movements even when the nominal exchange rate is rather fixed; moreover, that price adjustment is mostly an internal process for the accession countries. Overall we conclude that a fixed exchange rate regime for each of the accession countries would be feasible in itself, despite possible future real exchange rate appreciations due to either the Balassa-Samuelson effect or demand shifts. We find current misalignments to be small, robust and generally in line with the literature. This implies current exchange rate levels provide a reasonable indication of the level at which a parity exchange rate could be set.
    Keywords: international economics and trade ;
    Date: 2005
  3. By: Harold L. Cole; Lee E. Ohanian; Ron Leung
    Abstract: This paper presents a dynamic, stochastic general equilibrium study of the causes of the international Great Depression. We use a fully articulated model to assess the relative contributions of deflation/monetary shocks, which are the most commonly cited shocks for the Depression, and productivity shocks. We find that productivity is the dominant shock, accounting for about 2/3 of the Depression, with the monetary shock accounting for about 1/3. The main reason deflation doesn't account for more of the Depression is because there is no systematic relationship between deflation and output during this period. Our finding that a persistent productivity shock is the key factor stands in contrast to the conventional view that a continuing sequence of unexpected deflation shocks was the major cause of the Depression. We also explore what factors might be causing the productivity shocks. We find some evidence that they are largely related to industrial activity, rather than agricultural activity, and that they are correlated with real exchange rates and non-deflationary shocks to the financial sector.
    JEL: E0 N1
    Date: 2005–04

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