nep-ifn New Economics Papers
on International Finance
Issue of 2009‒07‒28
eleven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Choosing and assessing exchange rate regimes: A survey of the literature By Cruz Rodriguez, Alexis
  2. The Real Exchange Rate as an Instrument of Development Policy By Arslan Razmi; Martin Rapetti; Peter Skott
  3. Informed trading in an electronic foreign exchange market By Ramazan Gencay; Nikola Gradojevic
  4. Profitability in an electronic foreign exchange market: informed trading or differences in valuation? By Ramazan Gencay; Nikola Gradojevic; Faruk Selcuk
  5. Policy Responses to Exchange-Rate Movements By Laurence M. Ball
  6. Global Financial Architecture: Past and Present Arguments, Advice, Action By Ashima Goyal
  7. Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation By Aliyu, Shehu Usman Rano , PhD
  8. Sectoral R&D Intensity and Exchange Rate Volatility: A Panel Study for OECD Countries By Prashanth Mahagaonkar; Rainer Schweickert; Aditya S. Chavali
  9. An investigation of customer order flow in the foreign exchange market By Mario Cerrato; Nicholas Sarantis; Alex Saunders
  10. Monetary and Exchange Rate Regimes Changes: The Cases of Poland, Czech Republic, Slovakia and Republic of Serbia By Jean-Pierre Allegret; Kosta Josifidis; Emilija Beker Pucar
  11. Evidente privind Intensitatea Fenomenului Balassa-Sauelson pentru Economia Romaneasca By Altar, Moisa; Albu, Lucian Liviu; Dumitru, Ionut; Necula, Ciprian

  1. By: Cruz Rodriguez, Alexis
    Abstract: This paper explore more than 30 years of ideas on the issues surrounding the selection and assessment of exchange rate regimes. It will attempt to provide a comprehensive overview on the theoretical and empirical analysis of the selection and assessment of exchange rate regimes, exposing and interpreting those areas which, from our point of view, are representative of the most influential contributions in this context. The literature can be divided into two main groups: classical and modern. The first group refers to earlier studies examining the differences between floating and fixed exchange rate regimes based on the nature of the shocks and on the OCA theory. The second group is focused on the trade-off between credibility and flexibility, the economic performance and currency crisis, among others. In addition, this paper reviews why many countries follow de facto regimes different from their de jure regimes, that is, declaring different regimes to the actual regimes in place. Finally, this paper reviews the more recent empirical criteria that have been used to evaluate the choice of an optimal exchange regime.
    Keywords: Exchange rate; currency crisis; optimal currency area
    JEL: F02 F33 F31 F36
    Date: 2009–07–15
  2. By: Arslan Razmi (University of Massachusetts Amherst); Martin Rapetti (University of Massachusetts Amherst); Peter Skott (University of Massachusetts Amherst)
    Abstract: Growth is endogenous in small open economies with substantial hidden or open unemployment, even under constant returns to scale. Growth promoting policies, however, have implications for the balance of trade, and two instruments are needed in order to achieve targets for both the growth rate and the balance of trade. The real exchange rate can serve as one of those instruments. Distributional conflict imposes constraints on real exchange rate policies, but in LDCs the main exchange-rate related distributional conflict may be over the sectoral distribution of profits, rather than the real wage. This paper develops a model along these lines and presents empirical support for the hypothesis that real exchange rate undervaluations are a useful instrument for the pursuit of accumulation and growth in low income countries. JEL Categories: F43, O11, O41
    Keywords: Real exchange rates, underemployment, capital accumulation, investment, growth.
    Date: 2009–07
  3. By: Ramazan Gencay (Department of Economics, Simon Fraser University); Nikola Gradojevic (Faculty of Business Administration, Lakehead University)
    Abstract: We examine a recent set of high-frequency spot EUR-USD foreign exchange transaction data from an electronic foreign exchange market. Our framework is based on a continuous time-sequential microstructure trade model that measures the market makers beliefs directly. We present evidence of the strategic arrival of informed traders on a particular day of the week, time of day and geographic location (market)
    Keywords: Foreign Exchange Markets; Volume; Informed Trading; Noise Trading
    JEL: G0 G1 F3
    Date: 2009–01
  4. By: Ramazan Gencay (Department of Economics, Simon Fraser University); Nikola Gradojevic (Faculty of Business Administration, Lakehead University); Faruk Selcuk (Department of Economics, Bilkent University)
    Abstract: Fundamental spot exchange rate models preclude the existence of asymmetric information in foreign exchange markets. This article critically investigates the possibility that private information arises in the spot foreign exchange market. Using a rich dataset, we first empirically detect transaction behavior consistent with the informed trading hypothesis. We then work within the theoretical framework of a high-frequency version of a structural microstructure trade model, which directly measures the market maker’s beliefs. We find that the time-varying pattern of the probability of informed trading is rooted in the strategic arrival of informed traders on a particular hour-of-day, day-of-week, or geographic location (market)
    Keywords: Foreign Exchange Markets; Volume; Informed Trading; Noise Trading
    JEL: G0 G1
    Date: 2009–01
  5. By: Laurence M. Ball
    Abstract: This paper examines policy responses to exchange-rate movements in a simple model of an open economy. The optimal response of monetary policy to an exchange-rate change depends on the source of the change: on whether the underlying shock is a shift in capital flows, manufactured exports, or commodity prices. The paper compares the model’s prescriptions to the policies of an actual central bank, the Bank of Canada. Finally, the paper considers the role of fiscal policy in an open economy. Coordinated fiscal and monetary responses to exchange-rate movements stabilize output at the sectoral as well as aggregate level.
    JEL: E52 F41
    Date: 2009–07
  6. By: Ashima Goyal
    Abstract: In the context of the formation of G-20, the paper points out the absence of reform in the global financial architecture (GFA) after the East Asian crisis, and assesses factors that can improve the chances of real reform this time. A factual assessment of various causes advanced for the global crisis, puts the main responsibility on lax regulation. The paper summarizes the Chimerica debate and the blocks that have stalled progress in resolving the issue. It argues that symmetric and balanced reform, at individual country and international level, is required to remove the blocks. [WP-2009-004].
    Keywords: east Asian, regulation, emerging markets, markets, Global Financial architecture, Crisis, G-20, Imbalances, Over-saving,
    Date: 2009
  7. By: Aliyu, Shehu Usman Rano , PhD
    Abstract: This paper seeks to assess the impact of oil price shock and real exchange rate volatility on real economic growth in Nigeria on the basis of quarterly data from 1986Q1 to 2007Q4. The empirical analysis starts by analyzing the time series properties of the data which is followed by examining the nature of causality among the variables. Furthermore, the Johansen VAR-based cointegration technique is applied to examine the sensitivity of real economic growth to changes in oil prices and real exchange rate volatility in the long-run while the short run dynamics was checked using a vector error correction model. Results from ADF and PP tests show evidence of unit root in the data and Granger pairwise causality test revealed unidirectional causality from oil prices to real GDP and bidirectional causality from real exchange rate to real GDP and vice versa. Findings further show that oil price shock and appreciation in the level of exchange rate exert positive impact on real economic growth in Nigeria. The paper recommends greater diversification of the economy through investment in key productive sectors of the economy to guard against the vicissitude of oil price shock and exchange rate volatility.
    Keywords: Cointegration; Granger Causality; Oil price shock; Exchange Rate Volatility; VECM
    JEL: F40 F41 F43
    Date: 2009–05–03
  8. By: Prashanth Mahagaonkar; Rainer Schweickert; Aditya S. Chavali
    Abstract: A recent literature has pointed at potential negative effects of exchange rate volatility on innovation. In this paper, we propose that there may be a direct effect as well as an indirect effect via export activity. We test these hypotheses for sectoral R&D intensities using OECD panel data for manufacturing and services sectors for 14 OECD economies and the years 1987 - 2003. We find that the direct negative effect of volatility is pronounced in manufacturing sector but is dominated by the indirect effect via the export channel. Services do not face any effects of volatility on R&D intensities. While it is not clear which channel dominates our results confirm that there is a negative volatility affect related to openness on a sectoral level
    Keywords: R&D intensity, Innovation, Real Exchange Rate, Volatility, Exports, OECD-Countries
    JEL: E32 F31 O32
    Date: 2009–07
  9. By: Mario Cerrato; Nicholas Sarantis; Alex Saunders
    Abstract: This paper examines the effect that heterogeneous customer orders flows have on exchange rates by using a new propreitary dataset of weekly net order flow segmented by customer type across nine of the most liquid currency pairs. We make three contributions. First, we investigate the extent to which order flow can help to explain exchange rate movements over and above the influence of macroeconomic variables. Second, we look at the usefulness of order flow in forecasting exchange rate movements at longer horizons than those generally considered in the microstructure literature. Finally we address the question of whether the out-of-sample exchange rate forecasts generated by order flows can be employed profitably in the foreign exchange markets.
    Keywords: Customer order flow; exchange rates; microstructure; forecasting
    JEL: F31 F41 G10
    Date: 2009–07
  10. By: Jean-Pierre Allegret (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Kosta Josifidis (Faculty of Economics Subotica - Novi Sad University); Emilija Beker Pucar (Faculty of Economics Subotica - Novi Sad University)
    Abstract: The paper explores (former) transition economies, Poland, Czech Republic, Slovakia and the Republic of Serbia, concerning abandonment of the exchange rate targeting and fixed exchange rate regimes and movement toward explicit/implicit inflation targeting and flexible exchange rate regimes. The paper identifies different subperiods concerning crucial monetary and exchange rate regimes, and tracks the changes of specific monetary transmission channels i.e exchange rate channel, interest rate channel, indirect and direct influences to the exchange rate, with variance decomposition of VAR/VEC model. The empirical results indicate that Polish monetary strategy toward higher monetary and exchange rate flexibility has been performed smoothly, gradually and planned, compared to the Slovak and, especially, Czech case. The comparison of three former transition economies with the Serbian case indicate strong and persistent exchange rate pass-through, low interest rate pass-through, significant indirect and direct influence to the exchange rate as potential obstacles for successful inflation targeting in the Republic of Serbia.
    Keywords: Exchange rate targeting; Inflation targeting; Intermediate exchange rate regimes; Monetary transmission channels
    Date: 2009
  11. By: Altar, Moisa (Academia de Studii Economice, Bucuresti); Albu, Lucian Liviu (Institutul de Prognoza Economica); Dumitru, Ionut (Academia de Studii Economice, Bucuresti); Necula, Ciprian (Academia de Studii Economice, Bucuresti)
    Abstract: The paper presents some results revealing the existence of the Balassa-Samuelson effect in Romania as well as some estimates of its impact on inflation, appreciation of the real exchange rate and rising competitiveness of the Romanian economy. * Study published in PAIS III; Studiul nr. 2/2005; Instiutul European din Romania .
    Keywords: Balassa-Samuelson effect, exchange rate, inflation, competitiveness
    JEL: F33 O23 O24 O47
    Date: 2009–07

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