nep-ifn New Economics Papers
on International Finance
Issue of 2009‒04‒18
six papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Official Japanese Intervention in the JPY/USD Exchange Rate Market: Is It Effective and Through Which Channel Does It Work? By Rasmus Fatum
  2. Defending Against Speculative Attacks By Tijmen Daniëls; Henk Jager; Franc Klaassen
  3. The Dollar in the Turmoil By Agnes Benassy-Quere; Sophie Bereau; Valerie Mignon
  4. Oil Prices and Exchange Rates in Oil-Exporting Countries: Evidence from TAR and M-TAR Models By Mohammadi, Hassan; Jahan-Parvar, Mohammad R.
  5. Re-examining Symmetry of Shocks for East Asia: Results Using a VAR with Sign Restrictions By Vu Tuan Khai
  6. Analysis on ƒÀ and ƒÐ Convergences of East Asian Currencies By Eiji Ogawa; Taiyo Yoshimi

  1. By: Rasmus Fatum (University of Alberta)
    Abstract: This paper investigates whether official Japanese intervention in the JPY/USD exchange rate over the January 1999 to March 2004 time period is effective. By integrating the official intervention data with a comprehensive set of newswire reports capturing days on which there is a rumor or speculation of intervention, the paper also attempts to shed some light on through which of the two channels, the signaling channel in a broad sense or the portfolio balance channel, effective Japanese intervention works. The results suggest that Japanese intervention is effective during the first 5 years of the sample and ineffective during the last 3 months of the sample, thereby providing an ex-post rationale for why Japan intervened as well as for why the interventions stopped. Moreover, the results suggest that when Japanese intervention is effective, it works through a portfolio-balance channel. The results do not rule out that effective intervention also works through signaling.
    Keywords: exchange rates; foreign exchange market intervention; channels of Transmission
    JEL: E52 F31 G14
    Date: 2009–01
  2. By: Tijmen Daniëls; Henk Jager; Franc Klaassen
    Abstract: While virtually all currency crisismodels recognise that the fate of a currency peg depends on how tenaciously policy makers defend it, they seldom model how this is done. We incorporate themechanics of speculation and the interest rate defence against it in the model ofMorris and Shin (American Economic Review 88, 1998). Our model captures that the interest rate defence reduces speculators’ profits and thus postpones the crisis. It predicts that well before the fall of a currency interest rates are increased to offset the buildup of exchange market pressure, and this then unravels in a sharp depreciation. This pattern is at odds with predictions of standard models, but we show that it fits well with reality.
    Keywords: Exchange Market Pressure, Currency Crisis, Interest Rate Defence, Global Game
    JEL: E58 F31 F33 G15
    Date: 2009–02
  3. By: Agnes Benassy-Quere; Sophie Bereau; Valerie Mignon
    Abstract: We study the impact of the global financial crisis on the equilibrium exchange rate of the US dollar. We first simulate the impact of the crisis on the US net foreign asset position. Then, we calculate the equilibrium value of the dollar according both to a BEER and to a FEER approach. We find the case for a strong, although temporary, depreciation of the dollar even more acute than before the crisis. This suggests that the strength of the dollar in late 2008 and early 2009 may be short-lived.
    Keywords: Equilibrium exchange rate; US dollar; global imbalances; crisis; valuation effects
    JEL: F31 C23
    Date: 2009–04
  4. By: Mohammadi, Hassan; Jahan-Parvar, Mohammad R.
    Abstract: The paper studies the long-run relation and short-run dynamics between real oil prices and real exchange rates in a sample of fourteen oil-exporting countries to examine the possibility of Dutch disease in these countries. The results, based on threshold and momentum-threshold autoregressive (TAR and M-TAR) tests of cointegration, are mixed. Support for Dutch disease is found in five countries. For these countries, we also find evidence of (a) long-run uni-directional causality from oil prices to exchange rates; (b) faster adjustments in exchange rates to positive deviations from the equilibrium; and (c) short-run unidirectional causality from oil prices to exchange rates in two countries, unidirectional causality from exchange rates to oil prices in one country, and bi-directional causality between oil prices and exchange rates in one country.
    Keywords: Asymmetry; Cointegration; Dutch Disease; Error Correction; Oil Prices; Real Exchange Rates; Threshold and Momentum Threshold Autoregressive Models
    JEL: F37 C32 C52 F47 F31
    Date: 2009–02
  5. By: Vu Tuan Khai
    Abstract: I revisit the hotly debated topic regarding the possibility of introducing a common currency for East Asia from the point of view of shock symmetry. I first point out a serious problem of the existing studies which use the VAR method with long-run restrictions developed by Blanchard and Quah (1989) in that the signs of the impulse response functions to the same structural shock are not necessarily consistent across the countries. This means that the high (low) correlations of structural shocks do not necessarily imply low (high) costs of a common currency area. To overcome this problem, I apply the VAR method with sign restrictions developed by Uhlig (2005). I used the AD-AS model to impose sign restrictions on the responses of GDP and CPI to demand and supply shocks. One main finding is that demand shocks are significantly positively correlated among almost all East Asian countries. But overall, East Asia as a whole is not suitable for a common currency because correlations of supply shocks are low.
    Keywords: Structural VAR, Long run restriction, Sign restriction, Symmetry of Shocks, Common Currency, East Asia
    JEL: E32 F33 F41
    Date: 2009–03
  6. By: Eiji Ogawa; Taiyo Yoshimi
    Abstract: This paper investigates recent diverging trends among East Asian currencies as well as recent movements of the weighted average value of East Asian currencies (Asian Monetary Unit: AMU) and deviations (AMU Deviation Indicators) of the East Asian currencies from the average values by ƒÀ and ƒÐ convergence methods. Our empirical analysis shows that linkages with the US dollar have been weakening since 2001 or 2002 for some of the East Asian countries. On the other hand, the monetary authority of China continues stabilizing the exchange rate of the Chinese yuan against the US dollar even though it announced its adoption of a currency basket system. It is found that the weighted average of East Asian currencies has been appreciating against the US dollar while depreciating against the currency basket of the US dollar and the euro until the global financial crisis in 2008. Also, the analytical results on ƒÀ and ƒÐ Convergences show that deviations among the East Asian currencies have been widening@in recent years, reflecting the fact that these countriesf monetary authorities are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia.
    JEL: F31 F33
    Date: 2009–03

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