nep-ifn New Economics Papers
on International Finance
Issue of 2006‒07‒15
fourteen papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. New Evidence on the Puzzles: Monetary Policy and Exchange Rates By Almuth Scholl; ; Harald Uhlig
  2. Monetary Policy and the Illusionary Exchange Rate Puzzle By Hilde C. Bjørnland; University of Oslo
  3. Can Perpetual Learning Explain the Forward Premium Puzzle? By George W. Evans; Avik Chakraborty
  4. Euro-Dollar Real Exchange Rate Dynamics in an Estimated Two-Country Model By Pau Rabanal
  5. The Triple-Parity Law By Jean-Christian Lambelet
  6. Assessing the structural VAR approach to exchange rate pass-through By Ida Wolden Bache
  7. Exchange Rates and Fundamentals: Is there a Role for Nonlinearities in Real Time? By Yunus Aksoy; ; Kurmas Akdogan
  8. Exchange-Rate-Based Stabilization, Durables Consumption, and Stylized Facts By Manoj Atolia
  9. Effects of Fundamentals on the Exchange Rate: A Panel Analysis for a Sample of Industrialised and Emerging Economies By Jose Eduardo de A. Ferreira
  10. The Coordination Channel of Foreign Exchange Intervention By Stefan Reitz; M.P Taylor
  11. Learning to Forecast the Exchange Rate: Two Competing Approaches. By Paul De Grauwe
  12. The Equilibrium Real Exchange Rate in Peru: BEER Models and Confidence Band Building By Jesús Ferreyra; Jorge Salas
  13. The Independent Monetary Policy under the Fixed Exchange Regime By Gang Gong; William Goffe
  14. Evaluating the Success of Malaysia’s Exchange Controls (1998-99) By S M Ali Abbas (Hertford College)

  1. By: Almuth Scholl; ; Harald Uhlig
    Keywords: vector autoregressions, agnostic identification, forward discount bias puzzle, exchange rate puzzle, monetary policy
    JEL: C32 E58 F31
    Date: 2006–07–04
  2. By: Hilde C. Bjørnland; University of Oslo
    Keywords: Dornbusch overshooting, VAR, monetary policy, exchange rate puzzle, identification.
    Date: 2006–07–04
  3. By: George W. Evans; Avik Chakraborty (Department of Economics, University of Tennessee)
    Abstract: Under rational expectations and risk neutrality the linear projection of exchange rate change on the forward premium has a unit coefficient. However, empirical estimates of this coefficient are significantly less than one (and often negative). We investigate whether replacing rational expectations by discounted least squares (or "perpetual") learning can explain the result. We calculate the asymptotic bias under perpetual learning and show that there is a negative bias that becomes strongest when the fundamentals are strongly persistent, i.e. close to a random walk. Simulations confirm that adaptive learning is potentially able to explain the forward premium puzzle.
    Keywords: Learning, exchange rates, forward premium.
    JEL: D83 D84 F31 G12 G15
    Date: 2006–06–30
  4. By: Pau Rabanal (IMF)
    Keywords: Real Exchange Rates, Bayesian Estimation, Model Comparison.
    JEL: F41 C11
    Date: 2006–07–04
  5. By: Jean-Christian Lambelet
    Keywords: nominal uncovered interest rate parity, relative purchasing power parity, real interest rate parity, international arbitrage, economic laws, OECD countries
    JEL: C21 C31 E44 E41
    Date: 2006–07–04
  6. By: Ida Wolden Bache (Research Department Norges Bank (Central Bank of Norway))
    Date: 2006–07–04
  7. By: Yunus Aksoy; ; Kurmas Akdogan
    Keywords: monetary model, exchange rates, nonlinear adjustment, real time, unit roots, forecasting
    JEL: F31 F37
    Date: 2006–07–04
  8. By: Manoj Atolia (Florida State University)
    Keywords: Inflation, Exchange-Rate-Based-Stabilization, Durables
    JEL: E3 E63 F41
    Date: 2006–07–04
  9. By: Jose Eduardo de A. Ferreira
    Abstract: This paper tests the traditional monetary model of exchange rates for a sample of industrialized and emerging market economies by making use of panel techniques that allow for a high degree of heterogeneity across countries. The results demonstrated partial support for the monetary model for industrialised market economies but not for emerging ones. This constitutes a puzzle as it would expect countries with greater monetary instability to show a stronger association between exchange rates and monetary fundamentals.
    Keywords: Foreign Exchange; Fundamentals; Panel Data; Unit Roots; Assets
    JEL: F31 F37 F41
    Date: 2006–07
  10. By: Stefan Reitz (Economics Deutsche Bundesbank); M.P Taylor
    Keywords: foreign exchange intervention; market microstructure; nonlinear mean reversion
    JEL: C10 F31 F41
    Date: 2006–07–04
  11. By: Paul De Grauwe (KULeuven)
    Keywords: Exchange Rate Economics, Adaptive Learning, Behavioral Finance
    JEL: F31 F41
    Date: 2006–07–04
  12. By: Jesús Ferreyra (Central Bank of Peru); Jorge Salas (Central Bank of Peru)
    Abstract: This paper uses the "Behavioral Equilibrium Exchange Rate" (BEER) approach to estimate the equilibrium real exchange rate (RER) for Peru. A bootstrap technique is then employed to build confidence bands for the equilibrium path, so that it is possible to determine whether exchange rate misalignments are statistically significant. Additionally, structural breaks are modeled in the long-run relationship between the RER and its fundamentals. Using quarterly data for 1980.I-2005.III, the authors find that the long-run behavior of the Peruvian RER is explained by the following fundamentals: net foreign liabilities, terms of trade, and, less conclusively, government expenditure and openness. Moreover, the ratio of tradable to non-tradable sector productivities, both in domestic terms and relative to trading partners, appears as an additional RER fundamental only since the 1990s. Finally, there is evidence of some statistically significant RER misalignment episodes over the analyzed period.
    Keywords: Equilibrium Real Exchange Rate, BEER Models, Cointegration, Structural Break, Bootstrap
    JEL: F31 F41 C15 C22
    Date: 2006–06
  13. By: Gang Gong (Tsinghua University); William Goffe (Economics SUNY Oswego)
    Date: 2006–07–04
  14. By: S M Ali Abbas (Hertford College)
    Abstract: The paper evaluates in depth, the exchange control measures imposed by Malaysia in September-1998. Controls are evaluated using three alternative benchmarks—Malaysia vs. itself (pre-controls), vs. ex-ante forecasts of Malaysia for the year-1999, and Malaysia vs. the other affected East Asian economies. The comparisons suggest that controls were effective in turning some key variables around, especially the stock market index, and also enabled Malaysia to incur fewer social costs vis-à-vis the other crisis-economies. Finally, a GARCH measure of Malaysia’s interest-rate and stock-market volatility is obtained and the impact of controls on volatility studied. Evidence was found of volatility responding differentially to the Russian crisis (before controls) and the Brazilian crisis (after controls), indicating that controls helped insulate Malaysia from developments in global financial markets. Overall the paper confirms the necessity of LDCs retaining the capital controls option in the absence of material efforts to reform the international financial architecture and the inadequacy of conventional policy tools to effectively deal with present-day capital flows.

This nep-ifn issue is ©2006 by Yi-Nung Yang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.