nep-ifn New Economics Papers
on International Finance
Issue of 2007‒07‒13
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Economic Integration and the Foreign Exchange By Enzo Weber
  2. US Current Account Deficit and Exchange Rate Tax By De Lima, Gabrielle; Moura, Guilherme; Meurer, Roberto; Da Silva, Sergio
  3. Exchange Rate Exposure of Sectoral Returns and Volatilities: Evidence from Japanese Industrial Sectors By Prabhath Jayasinghe; Albert K. Tsui
  4. Comparative analysis of the exchange market pressure in Central European countries with the Eurozone membership perspective By Stavarek, Daniel
  5. Finanza internazionale e distribuzione del reddito By Pietro ALESSANDRINI; Alberto NICCOLI

  1. By: Enzo Weber
    Abstract: This paper demonstrates effects of economic convergence processes on the foreign exchange behaviour in a monetary modelling approach. Since the exchange rate represents the relative price of two currencies, commonness of stochastic trends between the fundamental determinants of supply and demand of the underlying monies restricts exchange rate movements to transitory fluctuations. In the spirit of optimal currency areas, this has the potential to serve as a criterion for an all-round integration of two economies. Empirically, such a constellation is found between Australia and New Zealand, whereas diverging trends in money and interest rates characterise the relation of Australia towards the US.
    Keywords: Monetary Exchange Rate Model, Convergence, Stationarity, Australia.
    JEL: F31 F41 C32
    Date: 2007–06
  2. By: De Lima, Gabrielle; Moura, Guilherme; Meurer, Roberto; Da Silva, Sergio
    Abstract: We examine the relationship between the US current account deficit, the international value of the dollar, and the dollar reserves of foreign central banks. We find that the international value of the dollar impacts the US current account and also that dollar depreciations are accompanied by reductions in the inflow of foreign reserves. The inflow reductions are indicative that the US levies an exchange rate tax on foreigners because the foreign stock of reserves loses value.
    Keywords: US current account; exchange rate tax
    JEL: F32 F42
    Date: 2007–07–08
  3. By: Prabhath Jayasinghe (Department of Economics, National University of Singapore); Albert K. Tsui (Department of Economics, National University of Singapore)
    Abstract: Most studies of exchange rate exposure of stock returns do not address three relevant aspects simultaneously. They are, namely: sensitivity of stock returns to exchange rate changes; sensitivity of volatility of stock returns to volatility of changes in foreign exchange market; and the correlation between volatilities of stock returns and exchange rate changes. In this paper, we employ a bivariate GJR-GARCH model to examine all such aspects of exchange rate exposure of sectoral indexes in Japanese industries. Based on a sample data of fourteen sectors, we find significant evidence of exposed returns and its asymmetric conditional volatility of exchange rate exposure. In addition, returns in many sectors are correlated with those of exchange rate changes. We also find support for the “averaged-out exposure and asymmetries” argument. Our findings have direct implications for practitioners in formulating investment decisions and currency hedging strategies.
    Keywords: exchange rate exposure; asymmetric volatility spillovers; GARCH-type models; conditional correlation
    JEL: C22 F31 G12 G15
    Date: 2007–06
  4. By: Stavarek, Daniel
    Abstract: This paper estimates the exchange market pressure (EMP) in four Central European countries (Czech Republic, Hungary, Poland, Slovakia) during the period 1993-2006. Therefore, it is one of very few studies focused on this region and the very first paper applying concurrently model-dependent as well as model-independent approach to the EMP estimation on these countries. The results obtained suggest that the approaches are not compatible and lead to absolutely inconsistent findings. They often differ in both identification of principal development trends and estimated magnitude and direction of the pressure. Therefore, any general conclusion on those issues is hard to draw. The paper provides evidence that a shift in the exchange rate regime towards the quasi-fixed ERM II should not lead to increasing EMP. However, it is highly probable that some episodes of the excessive EMP will make the fulfillment of the exchange rate stability criterion more difficult in all countries analyzed unless the criterion will have eased.
    Keywords: exchange market pressure; model-dependent approach; model-independent approach; EU New Member States; exchange rate stability criterion
    JEL: F36 E42 F31 C32
    Date: 2007–06–28
  5. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto NICCOLI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: Our purpose is to reconsider Vicarelli's main contributions on the international financial crisis and its impact on the international distribution of income in the period from Fifties to Seventies of the last century. Vicarelli used a unifying approach that integrates four levels of analysis. First of all, a rigorous theoretical scheme supported by empirical evidence. Second, the integration between real e monetary analysis of the international exchange. Third, the short run view extended to the long run. Finally, the interrelations between flows and stocks. The main focus is concentrated on the disequilibria in the current accounts of the balance of payments, that determine a redistribution of financial wealth among surplus and deficit countries. The lack of adjustment of the international disequilibria increases in the long run the accumulation of financial assets (for surplus countries) and liabilities (for deficit countries). This is the main source on the potential instability of the international monetary and financial systems. Expectations of changes in the exchange rates, in the interest rates, in the rates of inflation bring about sudden reallocations of the stock of financial assets. The undesired result is the destabilizing impact on the exchange markets and on the real markets, as it was experienced in the multiple crisis of the Bretton Woods system during the Sixties and also in the oil crises of the Seventies. The integrated approach adopted by Fausto Vicarelli is still alive. With the due differences, we are again in presence of structural imbalances in the international payments, with the consequent accumulation of financial stocks. The potential instability of the international system is in part under control of better equipped and more independent central banks. This is a reassuring item. On the other hand we cannot forget the overwhelming role of the size of financial stocks on the size of flow disequilibria. Causes and implications of this structural change are analyzed in the second part of the paper. From this point of view the conclusions are less reassuring.
    Keywords: current account adjustment, international financial system, stock-flows interrelations
    JEL: F3 F4
    Date: 2007–06

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