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on International Finance |
| By: | Baharumshah, Ahmad Zubaidi; Chan, Tze-Haw; Aggarwal, Raj |
| Abstract: | Using an improved statistical methodology including tests designed for heterogeneous panels, this paper tests for mean reversion in monthly US Dollar based real exchange rates for nine East Asian countries, including those that were severely affected by the 1997 Asian financial crises. The empirical results reveals mean reversion in real Asian exchange rates is a feature of the post-crises sub-period (1997-2005) but not of the pre-crises sub-period (1981-1996). Additionally, we make a point that a faster speed of convergence to PPP and lower adjustment half-lives for real exchange rates compared to those reported for major industrialized country currencies and especially so for the post-crises period in Asia. |
| Keywords: | Purchasing power parity; Panel unit root tests; Asian financial crisis |
| JEL: | F40 C12 C23 F31 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6090&r=ifn |
| By: | Javier Coto-Martinez (Department of Economics, City University, London); Juan Reboredo (Universidade de Santiago de Compostela) |
| Abstract: | In this paper, we consider the role of imperfect competition in explaining the relative price of non-traded to traded goods within the Balassa-Samuelson framework. Under imperfect competition in the two sectors, relative prices depend on both productivity differentials and mark-up differentials. We test this implication using a panel of sectors for the seven major OECD countries. The empirical evidence suggests that relative price movements are well explained by productivity and mark-up differentials. Unlike the original Balassa-Samuelson model, aggregate demand could affect the real exchange rate by changing the mark ups. The empirical results show that aggregate demand fluctuations lead to changes on the mark-ups. |
| Keywords: | Balassa-Samuelson hypothesis, real exchange rate, relative prices, imperfect competition. |
| JEL: | F31 F36 C23 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:0714&r=ifn |
| By: | Parsley, David; Wei, Shang-jin |
| Abstract: | We investigate whether the adoption of the euro was accompanied by an increase in prices in member countries, and whether it promoted goods market arbitrage in the form of faster convergence to a common price. By comparing the experience of eurozone countries to non-euro European countries in a ‘difference-in-differences’ specification we net out effects on prices unrelated to the euro. We conclude that (a) there is no evidence of significant price increases associated with the adoption of the euro even for food items; and (b) there is little systematic evidence of a significant improvement in goods market integration following the euro’s introduction. |
| JEL: | F3 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6041&r=ifn |
| By: | Eduardo Levy Yeyati and Federico Sturzenegger |
| Abstract: | Recent empirical research on emerging markets debt, currency crises and fiscal sustainability has placed a significant focus on the role of currency mismatches with the emphasis placed on the currency composition of explicit government liabilities . The key insight of this paper is that these liabilities, while relevant, usually represent a small share of actual government liabilities: indeed, as an indicator of fiscal solvency, they are relatively uninformative –and possibly misleading– if not matched with the remaining liabilities (promises of wage and pension payments among others) and the asset side of the government’s balance sheet: financial and real government assets as well as the present value of future tax collection. These non-debt liabilities and assets may be affected by changes in the real exchange rate in a way that dwarfs the effect on the explicit liabilities which are typically the focus of attention. With this in mind, this paper contributes proposes a balance-sheet approach that, as illustrated by the practical applications included here, may radically alter the results from traditional sustainability evaluations –and, more generally, the perception of a country’s fiscal vulnerability. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpbsdt:balancesheet&r=ifn |
| By: | Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The paper analyses the heterogeneity in the link between macroeconomic fundamentals and exchange rates. For a set of important US-specific economic shocks, it shows that such shocks have exerted a remarkably heterogeneous effect on global exchange rate configurations over the past 25 years. Despite a significant decline over time, this heterogeneity remains high as primarily currencies of a few industrialized countries provide the largest contribution to the adjustment of the effective US dollar exchange rate. The paper finds that this heterogeneity is not only due to policy choices of inflexible exchange rate regimes, but to an important extent due to market forces, in particular business cycle synchronization and the degree of financial integration – foremost in portfolio investment – but not to trade. The findings have implications for a potential unwinding of global imbalances and future exchange rate adjustment, as well as for monetary policy choices in emerging market economies. JEL Classification: F31, F4, G1. |
| Keywords: | Exchange rate, US dollar, cross-rates, shocks heterogeneity, global distribution, transmission channels. |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070835&r=ifn |
| By: | Laakkonen, Helinä (University of Jyväskylä) |
| Abstract: | Filtering intraday seasonality in volatility is crucial for using high frequency data in econometric analysis. This paper studies the effects of filtering on statistical inference concerning the impact of news on exchange rate volatility. The properties of different methods are studied using a 5-minute frequency USD/EUR data set and simulated returns. The simulation results suggest that all the methods tend to produce downward-biased estimates of news coefficients, some more than others. The study supports the Flexible Fourier Form method as the best for seasonality filtering. |
| Keywords: | high-frequency; volatility; macro announcements; seasonality |
| JEL: | C22 C49 C52 E44 |
| Date: | 2007–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2007_023&r=ifn |
| By: | Hans Genberg (Research Department, Hong Kong Monetary Authority); Dong He (Research Department, Hong Kong Monetary Authority) |
| Abstract: | In this paper we show that monetary policy frameworks in the East Asia and Pacific region are heterogeneous, with exchange rate policies being subordinate to domestic price stability objectives in most regional economies. We then argue that in this environment it is undesirable to focus regional cooperation on exchange rate policies because of the risk of creating conflicts with domestic objectives that would lead to loss of central bank credibility and possibly speculative attacks. We also argue that the case for coordinated exchange rate policies is in fact weak, even after taking into account the region¡¦s traditional emphasis on export performance and increasing regional trade integration. Rather than focusing cooperation on the setting of policy instruments, we suggest an alternative that centres on developing more liquid financial markets in the region in the foreseeable future, and on harmonising the objectives of monetary policy and designing institutions that could form the basis of deeper forms of cooperation in the longer-term future. |
| Keywords: | Regional monetary cooperation, exchange rate coordination, East Asia |
| JEL: | E42 F33 F36 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0715&r=ifn |
| By: | Catherine Schenk (University of Glasgow); John Singleton (Victoria University of Wellington) |
| Abstract: | How did developing countries adapt to the collapse of the Bretton Woods system? Using new archival evidence, we argue that New Zealand offers an interesting case study of decision-making in a small economy dependent on primary production with close economic and political links to two larger partners – Britain and Australia – with divergent domestic policies. After some experimentation, New Zealand adopted an innovative intermediate solution for the exchange rate that aimed to generate stability for primary producers during a period when the direction of trade was diversifying and most currencies were floating. This imaginative policy was not accompanied by comparable changes in reserves management, and until 1975 New Zealand continued to hold the bulk of its reserves in sterling. The article explores the different priorities and institutional constraints affecting the choice of anchor currency and reserve currency in this context. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:wef:wpaper:0030&r=ifn |
| By: | Michele Ca’ Zorzi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | From a conceptual point of view there is little consensus of what should be the “ideal indicator” of international cost and price competitiveness as each of the standard measures typically employed has its own merits and drawbacks. This calls for addressing the question from an empirical angle, searching for the indicator that best explains and helps forecast export developments. This paper constitutes a first attempt to systematically compare the properties of the alternative cost and price competitiveness measures of the euro area. Although they diverge sometimes, we find little evidence that there is one indicator consistently outperforming the other in terms of explaining and forecasting euro area exports. This suggests that the measures based on consumer and producer prices, which offer some advantages in terms of quality and timeliness, are good approximations of euro area price and cost competitiveness. JEL Classification: F17, F31, F41. |
| Keywords: | Real exchange rate, trade, exports, price competitiveness, euro area, forecast. |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070833&r=ifn |