|
on International Finance |
| By: | Marie Brière (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussel and Credit Agricole Asset Management SGR, Paris.); Bastien Drut (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussel, Credit Agricole Asset Management SGR and University of Paris Ouest, Paris.) |
| Abstract: | Empirical evidence shows that fundamental models have produced disappointing results over the past 20 years while carry trade strategies have performed superbly. But the real picture is much more complex. In fact, the track records of both strategies have varied considerably. This article shows that they have actually alternated between periods of profitability and underperformance. It also shows that when carry trade strategies perform well, fundamental strategies do poorly, and vice versa. Crises appear to play a significant role in the alternation of investment styles on currency markets. In contrast to carry trades, fundamental strategies perform remarkably well in crises. A portfolio that rotates between these two types of strategies, based on a risk aversion indicator such as implied equity volatility, would substantially outperform a pure carry trade strategy. |
| Keywords: | vix, financial crisis, purchasing power parity, carry trades, exchange rate equilibrium. |
| JEL: | F31 G15 G11 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:09-013&r=ifn |
| By: | Yushi Yoshida (Faculty of Economics, Kyushu Sangyo University) |
| Abstract: | For the estimation of exchange rate pass-through (henceforth ERPT), except for few evidences based on firm-level data, even the most disaggregated level of national export data is still biased with aggregation over sub-regions within an exporting country. We investigate to what extent this aggregation within product category is biased by comparing ERPT estimates across local ports. We use monthly exports at the HS 9-digit level from January 1988 to December 2005 for five major Japanese ports. In a panel data regression framework we control for exporting industry and importing country. Statistical tests provide strong evidence that export prices are set at different levels across local ports and that they correspond differently with respect to fluctuations of exchange rates. |
| Keywords: | Exchange rate pass-through; Firm heterogeneity; Japanese trade; Port-level trade; pricing-to-market |
| JEL: | F14 F31 F41 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:kyu:dpaper:31&r=ifn |
| By: | Galstyan, Vahagn |
| Abstract: | This paper documents the dynamic properties of the current account, trade balance and international capital flows. For this purpose, two approaches are taken: probit and a nonparametric estimation. The probabilistic approach shows that, in general, deficits and net inflows tend to be more persistent than surpluses and net outflows. This result is robust to either specification of pooled and country-specific probits. The results of non-parametric estimation are in line with the results obtained from the probit. |
| Keywords: | Capital flows, persistence |
| JEL: | F00 F30 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:7492&r=ifn |
| By: | Carl Chiarella (School of Finance and Economics, University of Technology, Sydney); Xue-Zhong He (School of Finance and Economics, University of Technology, Sydney); Min Zheng (School of Finance and Economics, University of Technology, Sydney) |
| Abstract: | This paper presents a continuous-time model of exchange rates relying not only on macroeconomic factors but also having a market microstructure component. The driving macroeconomic factor is the interest rate differential, while the market microstructure element is described by the expectations of boundedly rational portfolio managers who use a weighted average of the expectations of fundamentalists and chartists. Within this framework, the different roles of the macroeconomic factors and market microstructure elements on the determination of the exchange rate are examined explicitly. We show that this simple model generates very complicated market behaviour, including the existence of multiple steady state equilibria, the deviations of the market exchange rate from the fundamental, and market fluctuations. Numerical simulation of the corresponding stochastic version of the model shows that the model is able to generate typical time series and volatility clustering patterns observed in exchange rate markets. |
| Keywords: | Exchange rate; interest rate differential; heterogeneous expectations |
| JEL: | F31 F41 |
| Date: | 2009–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:rpaper:243&r=ifn |
| By: | Mathias Hoffmann; Ronald MacDonald |
| Abstract: | Although the real exchange rate - real interest rate (RERI) relationship is central to most open economy macroeconomic models, empirical support for the relationship is generally found to be rather weak. In this paper we re-investigate the RERI relationship using bilateral U.S. real exchange rate data spanning the period 1978 to 2007. Instead of testing one particular model, we build on Campbell and Shiller (1987) to propose a metric of the economic significance of the relationship. Our empirical results provide robust evidence that the RERI link is economically significant and that the real interest rate differential is a reasonable approximation of the expected rate of depreciation over longer horizons. |
| Keywords: | Real Exchange Rates, Real Interest Rates, Present Value Model. |
| JEL: | E43 F31 F41 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:404&r=ifn |
| By: | Rahman, Mizanur; Kalirajan, Kaliappa |
| Abstract: | This paper estimates long-run effects of a collective exchange rate adjustment on multilateral exports from China, Japan, South Korea, and Taiwan. The findings show that a 1 percent generalized appreciation of all East Asian exchange rates would reduce East Asian exports by about 3 percent. |
| Keywords: | Global imbalance; exchange rate appreciation; collective adjustment; production networks; East Asia. |
| JEL: | F42 F32 F12 F14 C33 |
| Date: | 2008–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13934&r=ifn |
| By: | Rasmus Fatum (University of Alberta); Michael Hutchison (University of California, Santa Cruz); Thomas Wu (University of California, Santa Cruz) |
| Abstract: | We investigate the effects of both U.S. and Japanese news surprises, measured as the difference between macroeconomic announcements and preceding survey expectations, on the intraday JPY/USD exchange rate. No previous study has considered the intraday JPY/USD exchange rate responses to a broad set of comparable news surprises from both the U.S. and Japan. We show that news surprises from Japan are as influential as those from the U.S. in moving 5-minute JPY/USD exchange rate returns and, therefore, focusing on U.S. news while disregarding foreign news misses half the story. Our results also show that distinguishing between positive and negative news surprises and the state of the Japanese business cycle is important in understanding the link between exchange rates and news. |
| Keywords: | Foreign Exchange Rates; Intraday Data; Macroeconomic News Effects |
| JEL: | F31 G15 C22 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:09-01&r=ifn |
| By: | Guillermo Benavides; Carlos Capistrán |
| Abstract: | This paper provides empirical evidence that combinations of option implied and time series volatility forecasts that are conditional on current information are statistically superior to individual models, unconditional combinations, and hybrid forecasts. Superior forecasting performance is achieved by both, taking into account the conditional expected performance of each model given current information, and combining individual forecasts. The method used in this paper to produce conditional combinations extends the application of conditional predictive ability tests to select forecast combinations. The application is for volatility forecasts of the Mexican Peso-US Dollar exchange rate, where realized volatility calculated using intra-day data is used as a proxy for the (latent) daily volatility. |
| Keywords: | Composite Forecasts, Forecast Evaluation, GARCH, Implied volatility, Mexican Peso-U.S. Dollar Exchange Rate, Regime-Switching |
| JEL: | C22 C52 C53 G10 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2009-01&r=ifn |
| By: | Wang, Wen-Yao; Hernandez-Verme, Paula |
| Abstract: | We model a typical Asian-crisis-economy using dynamic general equilibrium techniques. Meaningful exchange rates obtain from nontrivial demands for fiat currencies. Sudden stops/bank-panics are possible, and key for evaluating the relative merits of alternative exchange rate regimes in promoting stability. Strategic complementarities contribute to the severe indeterminacy of the continuum of equilibria; there is a strong association between the scope for existence and indeterminacy of equilibria, the properties along dynamic paths and the underlying policy regime. Binding multiple reserve requirements reduce the scope for financial fragility and panic equilibria; backing the money supply acts as a stabilizer only in fixed regimes. |
| Keywords: | Sudden stops; Exchange rate regimes; Multiple reserve requirements |
| JEL: | E31 E44 F41 |
| Date: | 2009–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13802&r=ifn |