nep-ifn New Economics Papers
on International Finance
Issue of 2008‒02‒23
six papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. What Drives the Dynamic Conditional Correlation of Foreign Exchange and Equity Returns? By Vargas, Gregorio A.
  2. Real Exchange Rates over a Century: The Case of the Drachma/Sterling Rate, 1833-1939 By Dimitrios Sideris
  3. Exchange Rate Regime Transition Dynamics In East Asia By Monzur Hossain
  4. Some Empirical Evidence on the Effects of U.S. Monetary Policy Shocks on Cross Exchange Rates By Sarantis Kalyvitis; Ifigeneia Skotida
  5. Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America By Roberto Chang
  6. The Baltic Exchange: Mutual Influences between Economists in the German and Swedish Language Areas By Sandelin, Bo; Trautwein, Hans-Michael

  1. By: Vargas, Gregorio A.
    Abstract: This paper establishes the link of microstructure and macroeconomic factors to the time-varying conditional correlation of foreign exchange and excess equity returns. By using the proposed DCC model with exogenous variables, capital flows and interest rate differentials are shown to be significant factors in driving this conditional correlation. Furthermore, using this model it provides evidence of the dynamic behavior of global investors as they seek parity in equity returns between home and foreign markets to reduce exchange rate risks.
    Keywords: uncovered equity parity; order flow; ADCCX
    JEL: C32 G15 F31
    Date: 2008–02
  2. By: Dimitrios Sideris (Bank of Greece and University of Ioannina)
    Abstract: Recent studies on real exchange rates advocate the use of long samples in order to reveal the low frequency properties of the processes. The present paper contributes to this strand of the literature by exploiting recently released time series for the drachma/sterling rate for the period 1833-1939. This is an interesting period as it covers different exchange rate regimes and the effects of important historical events. In the paper, the mean-reverting behaviour of the real drachma/sterling exchange rate is initially examined applying univariate unit root tests and then the validity of Purchasing Power Parity (PPP) is tested using cointegration analysis. The results provide support for a weak PPP relationship, which turns out to be robust across different sub-periods characterised by different exchange rate regimes. Adjustment to PPP is reached at a relatively high speed and occurs via movements of the nominal exchange rate.
    Keywords: real exchange rates; cointegration; PPP
    JEL: F31 C32 N23 N24
    Date: 2008–01
  3. By: Monzur Hossain (American International University Bangladesh)
    Abstract: This paper investigates the currency regime choices of six East Asian emerging countries, namely, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand, for the period 1973-99 from the optimum currency area (OCA), macroeconomic stabilization and currency crisis perspectives. It finds that regime transition dynamics in these countries are statistically insignificant for the period under consideration, but static regime choice is largely consistent with the predictions of international macroeconomics. The empirical results suggest that a more fixed or flexible regime is suitable for these East Asian countries.
    Date: 2008–01
  4. By: Sarantis Kalyvitis (Athens University of Economics and Business); Ifigeneia Skotida (Bank of Greece and Athens University of Economics and Businesso)
    Abstract: This paper examines the impact of U.S. monetary policy shocks on the cross exchange rates of sterling, yen and mark. The main finding of the paper is a ‘delayed overshooting’ pattern for all currency cross rates examined (sterling/yen, yen/mark and mark/sterling) following an unexpected U.S. monetary policy change, which in turn generates excess returns. We also provide evidence that the ‘delayed overshooting’ pattern in cross exchange rates is accompanied by asymmetric interventions by central banks in the foreign exchange markets under consideration triggered by U.S. monetary policy shocks.
    Keywords: Monetary Policy; Delayed Overshooting; Foreign Exchange Intervention
    JEL: E52 F31
    Date: 2008–01
  5. By: Roberto Chang
    Abstract: This paper examines whether central banks in Latin America have implemented conventional inflation targeting (IT) prescriptions, with a focus on foreign exchange intervention and official reserves accumulation policies. To this end, the paper reviews the experiences of Brazil, Chile, Colombia, and Peru, and finds significant departures from the dominant theory of IT. Foreign exchange intervention has often been used to prevent excessive financial volatility, bubbles, and panics. Ongoing patterns of reserves accumulation have been the outcome of an effort to build “war chests” against speculative attacks and, more recently, of a fight against real exchange appreciation. Possible justifications of the discrepancies between conventional IT theory and practice are discussed and generally found unsatisfactory.
    Date: 2008–02–14
  6. By: Sandelin, Bo (Department of Economics, School of Business, Economics and Law, Göteborg University); Trautwein, Hans-Michael (Carl von Ossietzky Universität Oldenburg)
    Abstract: In the 19th and 20th centuries economists of the German and Swedish language areas strongly influenced each other and made significant contributions to the development and critique of neoclassical economics. In our paper, we focus on the prominent contributions of Wicksell, Cassel, Hayek and Myrdal, but consider also others, such as Lutz, Neisser, Palander and Schneider. It might look far fetched to describe their interaction as a “Baltic exchange”, since (for example) Vienna is not part of that region. But history and geographical proximity made German the scientific language for Scandinavian academics in the 19th century, helping Swedish economists to spread their ideas widely on the Continent, before they made an impact in the English language area. Much of the interaction happened indeed close to the Baltic Sea. In the paper we discuss the German influence on Swedish economics that occurred mainly before the First World War, and the Swedish influence on German economics, mainly thereafter. We provide biographical, bibliographical and textual evidence for an exchange of ideas that has stimulated the development of economics far beyond the Baltic Sea.<p>
    Keywords: Germany; Sweden; influence; history of economic thought
    JEL: B10 B20
    Date: 2008–02–15

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