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on International Finance |
| By: | Mario J. Crucini (Department of Economics, Vanderbilt University); Mototsugu Shintani (Department of Economics, Vanderbilt University); Takayuki Tsuruga (Faculty of Economics, Kansai University) |
| Abstract: | We study the dynamics of good-by-good real exchange rates using a micro-panel of 270 goods prices drawn from major cities in 63 countries and 258 goods prices drawn from 13 major U.S. cities. We find the half-life of deviations from the Law-of-One-Price for the average good is about 1 year. The average half-life is very similar across the OECD, the LCD and within the U.S., suggesting little in the way of nominal exchange rate regime influences. The average non-traded good has a half-life of 1.9 years compared to 1.2 years for traded-goods, for the OECD, with modest differences elsewhere. Aggregating the micro-data increases persistence in the OECD by 6 months to 1.5 years, well below levels obtained using aggregate CPI data. We attribute these differences to conceptual and methodological factors and argue in favor of increased use of micro-price data in applied theory. |
| Keywords: | Real exchange rates, purchasing power parity, law of one price, dynamic panel |
| JEL: | E31 F31 D40 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0810&r=ifn |
| By: | Jeffrey A. Frankel; Shang-Jin Wei |
| Abstract: | The paper offers a new approach to estimate de facto exchange rate regimes, a synthesis of two techniques. One is a technique that the authors have used in the past to estimate implicit de facto weights when the hypothesis is a basket peg with little flexibility. The second is a technique used by others to estimate the de facto degree of exchange rate flexibility when the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly-substantial degree of flexibility around that anchor. Since many currencies today follow variants of Band-Basket-Crawl, it is important to have available a technique that can cover both dimensions, inferring weights and inferring flexibility. We try out the technique on twenty-some currencies, over the period 1980-2007. Most are currencies that have officially used baskets as anchors for at least part of this sample period. But a few are known floaters or known simple peggers. In general the synthesis technique seems to work as it should. |
| JEL: | F31 F41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14016&r=ifn |
| By: | Francis , Bill B (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Rensselaer Polytechnic Institute and Bank of Finland Research); Hunter, Delroy M (College of Business, University of South Florida) |
| Abstract: | While the importance of currency movements to industry competitiveness is theoretically well established, there is little evidence that currency risk impacts US industries. Applying a conditional asset-pricing model to 36 US industries, we find that all industries have a significant currency premium that adds about 2.47 percentage points to the cost of equity and accounts for approximately 11.7% of the absolute value of total risk premia. Cross-industry variation in the currency premium is explained by foreign income, industry competitiveness, leverage, liquidity and other industry characteristics, while its time variation is explained by US aggregate foreign trade, monetary policy, growth opportunities and other macro variables. The results indicate that methodological weakness, not hedging, explains the insignificant industry currency risk premium found in previous work, thus resolving the conundrum that the currency risk premium is important at the aggregate stock market level, but not at industry level. |
| Keywords: | exposure; currency risk premium; cost of equity; industry competition; international asset pricing |
| JEL: | C30 F30 F40 G30 |
| Date: | 2008–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_014&r=ifn |
| By: | Moura, Marcelo |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_117&r=ifn |
| By: | Luc Bauwens; Genaro Sucarrat |
| Abstract: | The general-to-specific (GETS) methodology is widely employed in the modelling of economic series, but less so in financial volatility modelling due to computational complexity when many explanatory variables are involved. This study proposes a simple way of avoiding this problem when the conditional mean can appropriately be restricted to zero, and undertakes an out-of-sample forecast evaluation of the methodology applied to the modelling of weekly exchange rate volatility. Our findings suggest that GETS specifications perform comparatively well in both ex post and ex ante forecasting as long as sufficient care is taken with respect to functional form and with respect to how the conditioning information is used. Also, our forecast comparison provides an example of a discrete time explanatory model being more accurate than realised volatility ex post in 1 step forecasting. |
| Keywords: | Exchange rate volatility, General to specific, Forecasting |
| JEL: | C53 F31 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we081810&r=ifn |
| By: | Frank Leung (Research Department, Hong Kong Monetary Authority); Philip Ng (Research Department, Hong Kong Monetary Authority) |
| Abstract: | This paper estimates the equilibrium path of the Hong Kong dollar real effective exchange rate (REER) and compares it with the actual path of the Hong Kong dollar REER to assess the extent of real exchange rate misalignment. Empirical results from various approaches of exchange rate assessment adopted in this study generally suggest that there was no obvious evidence of exchange rate misalignment for the Hong Kong dollar in 2006. This is consistent with the observation that there were no obvious signs of macroeconomic imbalances in the Hong Kong economy. |
| Keywords: | Real effective exchange rate, Hong Kong dollar |
| JEL: | F32 F41 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0721&r=ifn |
| By: | Li-gang Liu (Research Department, Hong Kong Monetary Authority); Laurent Pauwels (Research Department, Hong Kong Monetary Authority); Jun-yu Chan (Research Department, Hong Kong Monetary Authority) |
| Abstract: | This paper investigates whether external political pressures calling for faster renminbi (RMB) appreciation have any statistically significant effect on both the daily returns and the conditional volatility of the RMB central parity rate. We construct various external pressure indicators according to the sources of foreign political pressures pertaining to the RMB exchange rate, with a special emphasis on the pressures originated in the United States. After controlling for the underlying domestic factors, we find that neither the overall foreign pressure indicator nor the US-specific pressure indicator has any significant influence on RMB¡¦s daily returns. However, there is strong evidence to suggest that external pressures, and especially those from US sources, have a statistically significant impact on the conditional volatility of the RMB exchange rate. In other words, even though external pressures do not seem to have systematic influence on the speed of the RMB appreciation, they do seem to influence the uncertainty in the daily changes of the RMB exchange rate. |
| Keywords: | Renminbi exchange rate, Conditional volatility, Event studies, Macroeconomic news or surprises |
| JEL: | F31 G10 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0805&r=ifn |