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on International Finance |
| By: | Imed Drine (IHEC Sousse - IHEC); Christophe Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans) |
| Abstract: | The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni (1999, 2004) and generalized by Banerjee and Carrion-i-Silvestre (2006) to examine the robustness of the PPP concept for a sample of 80 developed and developing countries. We find that strong PPP is verified for OECD countries and weak PPP for MENA countries. However in African, Asian, Latin American and Central and Eastern European countries, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. Further investigations indicate that the nature of the exchange rate regime doesn’t condition the validity of PPP which is more easily accepted in countries with high than low inflation. |
| Keywords: | Purchasing power parity, real exchange rate, developed country, developing country, panel unit-root and cointegration tests. |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00322105_v1&r=ifn |
| By: | Juan Carlos Cuestas; Paulo Jose Regis |
| Abstract: | The aim of this paper is to analyse the empirical fulfilment of the PPP in Australia (1977-2004). Previous research focuses on the presence of structural breaks and fails to find any support to the PPP (Darne and Hoarau, 2008, Henry and Olekalns, 2002). In contrast, we find that the PPP hypothesis holds once we account for a more general specification of the Nonlinear Deterministic components based on a Chebishev polynomials approximation. |
| Keywords: | PPP, Real exchange rates, Unit roots, nonlinearities |
| JEL: | C32 F15 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbs:wpaper:2008/3&r=ifn |
| By: | Thomas Y. Mathä |
| Abstract: | This paper analyses price differences of McDonald?s products in four different countries. I show that pricing at pricing points in different currencies may contribute to explaining deviations from the law of one price. Observing strictly equal prices is more probable if prices are at psychological and fractional pricing points in a common currency. The latter is also found to reduce the size of price deviations. Additionally, price differences increase as transaction costs increase. Based on this data set there is no evidence that the euro has reduced price deviations. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etude_34&r=ifn |
| By: | Christian Dreger |
| Abstract: | The real interest partity (RIP) condition combines two cornerstones in international finance, uncovered interest parity (UIP) and ex ante purchasing power parity (PPP). The extent of deviation from RIP is therefore an indicator of the lack of product and financial market integration. This paper investigates whether the nominal exchange rate regime has an impact on RIP. The analysis is based on 15 annual real interest rates and covers a long time span, 1870-2006. Four subperiods are distinguished and linked to fixed and flexible exchange rate regimes: the Gold Standard, the interwar float, the Bretton Woods system and the current managed float. Panel integration techniques are used to increase the power of the tests. Cross section correlation is embedded via common factor structures. The results suggest that RIP holds as a long run condition irrespectively of the exchange rate regimes. Adjustment towards RIP is affected by the institutional framework and the historical episode. Half lives of shocks tend to be lower under fixed exchange rates and in the first part of the sample, probably due to higher price flexibility before WWII. Although barriers to foreign trade and capital controls were substantially removed after the collapse of the Bretton Woods system, they did not lead to lower half lives during the managed float. |
| Keywords: | Real interest parity, nominal exchange rate regime, panel unit roots, common factors |
| JEL: | C32 F21 F31 F41 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp819&r=ifn |
| By: | George Christodoulakis (Manchester Business School, University of Manchester); Emmanuel Mamatzakis (Department of Economics, University of Macedonia) |
| Abstract: | This paper provides evidence on the existence of asymmetries in the underlying loss preferences for the difference between the spot and forward nominal exchange rate. We find that, in the context of both linear and non-linear loss functions, the underlying loss preferences for monthly data are predominantly asymmetric, whilst for weekly exchange rates asymmetry tends to weaken. In a second stage we run cross section regressions to examine what variables drive this asymmetry. Interestingly, besides some macroeconomic variables, such as the growth rate and price changes, political and security risk assert some significant impact on asymmetry. |
| Keywords: | Asymmetric preferences, Spot-forward exchange rates, GMM estimation, Lin-Lin. |
| JEL: | C53 E27 E37 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2008_12&r=ifn |
| By: | Schmidt, Christian W.; Broll, Udo |
| Abstract: | This paper empirically analyzes the impact of exchange rate uncertainty, exchange rate movements and expectations on foreign direct investment (FDI). Two competing specifications of exchange rate volatility are examined. The investigation is based on a cross-section time-series data set of U.S. outward FDI by industries to six major partner countries for the period 1984–2004. Using the standard deviation of the real exchange rate as a measure of risk it is found that exchange rate uncertainty has a discouraging effect on FDI flows across all industries. This is contrasted when applying an alternative risk specification defined as the unexplained part of real exchange rate volatility. Now, results show a clear distinction between non-manufacturing and manufacturing industries. U.S. FDI outflows in nonmanufacturing industries exhibit a positive correlation with increased exchange risk, whereas this relationship is negative for manufacturing industries in the underlying sample. A real appreciation of host-country currency was associated with higher FDI flows, while expectations about an appreciation showed a negative result. |
| Keywords: | Foreign direct investment; real exchange rate risk; volatility |
| JEL: | F23 F21 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10713&r=ifn |
| By: | Kin-Yip Ho (Department of Economics, Cornell University, Ithaca, USA); Albert K Tsui (Department of Economics, National University of Singapore) |
| Abstract: | Singapore dollar are analyzed in this paper. Our approach can simultaneously capture the empirical regularities of persistent and asymmetric effects in volatility and timevarying correlations of financial time series. Consistent with the results of Tse and Tsui (1997), there is only some weak support for asymmetric volatility in the case of the Malaysian ringgit when the two currencies are measured against the US dollar. However, there is strong evidence that depreciation shocks have a greater impact on future volatility levels compared with appreciation shocks of the same magnitude when both currencies measured against the yen. Moreover, evidence of time-varying correlation is highly significant when both currencies are measured against the yen. Regardless of the choice of the numeraire currency and the volatility models, shocks to exchange rate volatility are found to be significantly persistent. |
| Keywords: | Constant correlations; Exchange rate volatility; Fractional integration; Long memory; Bivariate asymmetric GARCH; Varying correlations |
| JEL: | C12 G15 |
| Date: | 2008–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:sca:scaewp:0805&r=ifn |
| By: | Juan Carlos Cuestas; Estefania Mourelle |
| Abstract: | In this paper we aim at modelling the long run behaviour of the Real Effective Exchange Rates (REER) for a pool of African countries. Not much attention has been paid to this group of countries, in particular, to the existence of nonlinearities in the long run path of such a variable. Controlling for two sources of nonlinearites, i.e. asymmetric adjustment to equilibrium and nonlinear deterministic trends allows us to gain some insight about the behaviour of the African REER. We find that these sources of nonlinearites help us to explain the apparent unit root behaviour found applying linear unit root tests for most of the countries. |
| Keywords: | PPP, Real Exchange Rates, Unit roots, Nonlinearities. |
| JEL: | C32 F15 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbs:wpaper:2008/8&r=ifn |
| By: | Andrew Coleman; Özer Karagedikli (Reserve Bank of New Zealand) |
| Abstract: | This paper examines the relative size of the effects of New Zealand monetary policy and macroeconomic data surprises on the spot exchange rate, 2 and 5 year swap rate differentials, and the synthetic forward exchange rate schedule. We find that the spot exchange rate and 5 year swap rates respond by a similar magnitude to monetary surprises, implying there is little response of the forward exchange rate to this type of news. In contrast, the spot exchange rate responds by nearly three times as much as 5 year interest rates to CPI and GDP surprises, implying that forward rates appreciate to higher than expected CPI or GDP news. This is in contrast to standard theoretical models and US evidence. Lastly, we show that exchange rates but not interest rates respond to current account news. The implications of these results for monetary policy are considered. Classification-E50, J61, R21, R23 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2008/12&r=ifn |
| By: | Filippo di Mauro (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Rasmus Rueffer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Irina Bunda (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | In addition to its direct effects on the global trading and production structure, the ongoing process of globalisation may have important implications for the interaction of exchange rates and the overall economy. This paper presents evidence regarding possible changes in the role of exchange rates in a more globalised economy. First, it analyses the link between exchange rates and prices, showing that there is at most a moderate decline in exchange rate pass-through for the euro area. Next, it turns to the effect of exchange rate changes on trade flows. The findings indicate that the responsiveness of euro area exports to exchange rate changes may have declined somewhat as a result of globalisation, reflecting mainly shifts in the geographical and sectoral composition of trade flows. The paper also provides a firm-level analysis of the impact of exchange rate changes on corporate profits, which suggests that overall this relationship appears to be relatively stable over time, although there are important crosscountry differences. In addition, it studies the overall impact of exchange rates on GDP and the potential role of valuation effects as a transmission channel in the case of the euro area. JEL Classification: E3, F15, F31. |
| Keywords: | Globalisation, exchange rate, trade exchange rate pass-through, valuation effects. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20080094&r=ifn |
| By: | Stéphane Dées (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Matthias Burgert (University of Frankfurt, House of Finance, Grüneburgplatz 1, D-60323 Frankfurt am Main, Germany.); Nicolas Parent (Bank of Canada, 234 Wellington Street, Ottawa, Ontario K1A 0G9, Canada.) |
| Abstract: | This paper aims at showing heterogeneity in the degree of exchange rate pass-through to import prices in major advanced economies at three different levels: 1) across destination markets ; 2) across types of exporters (distinguishing developed economy from emerging economy exporters); and 3) over time. Based on monthly data over the period 1991-2007, the results show first that large destination markets exhibit the lowest degree of pass-through. The degree of pass-through for goods imported from emerging economies is also significantly lower than for those from developed economies. Regarding the evolution over time, no clear change in pricing behaviours can be identified and particular events, like large exchange rates depreciations during the Asian crisis, seem to influence the degree of pass-through related to imports from emerging economies. JEL Classification: E31, F3, F41. |
| Keywords: | Pricing to Market, Exchange rate pass-through, Import price modeling. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080933&r=ifn |