nep-ifn New Economics Papers
on International Finance
Issue of 2009‒11‒07
five papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Exchange rate uncertainty and deviations from Purchasing Power Parity: Evidence from the G7 area By Arghyrou, Michael G; Gregoriou, Andros; Pourpourides, Panayiotis M.
  2. The Exchange Rate and US Tourism Balance of Trade By Cheng, Ka Ming; Kim, Hyeongwoo; Thompson, Henry
  3. Asymmetry of the exchange rate pass-through: An exercise on the Polish data. By Przystupa, Jan; Wróbel, Ewa
  4. What do we know about real exchange rate non-linearities? By Robinson Kruse; Michael Frömmel; Lukas Menkhoff; Philipp Sibbertsen
  5. The European Central Bank, the Federal Reserve and the Bank of England: is the Taylor Rule an useful benchmark for the last decade? By Forte, Antonio

  1. By: Arghyrou, Michael G (Cardiff Business School); Gregoriou, Andros; Pourpourides, Panayiotis M. (Cardiff Business School)
    Abstract: Arghyrou, Gregoriou and Pourpourides (2009) argue that exchange rate uncertainty causes deviations from the law of one price. We test this hypothesis on aggregate data from the G7-area. We find that exchange rate uncertainty explains to a significant degree deviations from Purchasing Power Parity.
    Keywords: Purchasing power parity; exchange rate uncertainty
    JEL: F31 F41
    Date: 2009–11
  2. By: Cheng, Ka Ming; Kim, Hyeongwoo; Thompson, Henry
    Abstract: This paper investigates evidence on the effect of dollar depreciation on the US tourism balance of trade. Export revenue and import spending functions are estimated separately with structural vector autoregressive methods to better capture the dynamic adjustment to exchange rate shocks. Quarterly data cover the period of floating exchange rates from 1973 through 2007. Depreciation raises long term US export revenue but there is no effect on import spending.
    Keywords: balance of trade; exchange rate; tourism; structural vector autoregressive model; J-curve
    JEL: C32 F10
    Date: 2009–10
  3. By: Przystupa, Jan; Wróbel, Ewa
    Abstract: We propose a complex analysis of the exchange rate pass-through in an open economy. We assess the level, linearity and symmetry of exchange rate pass-through to import and consumer prices in Poland and discuss its implications for the monetary policy. We show that the pass-through is incomplete even in the long run. There is pricing to market behavior both in the long and short run. We do not find a strong evidence of non-linearity in import prices reaction to the exchange rate and reject the hypothesis of an asymmetric response to appreciations and depreciations. On the other hand, we find an asymmetry of CPI responses to the output gap, direction and size of the exchange rate changes and to the magnitude of the exchange rate volatility. The asymmetry is mostly visible after exogenous shocks. We reject the hypothesis of an asymmetric reaction of prices in a high and low inflation environment.
    Keywords: Exchange Rate Pass-through; Non-linear Model.
    JEL: E52 C22 F31
    Date: 2009–04–30
  4. By: Robinson Kruse (Aarhus University and CREATES); Michael Frömmel (Ghent University); Lukas Menkhoff (Leibniz University Hannover); Philipp Sibbertsen (Leibniz University Hannover)
    Abstract: This research points to the serious problem of potentially misspecified alternative hypotheses when testing for unit roots in real exchange rates. We apply a popular unit root test against nonlinear ESTAR and develop a Markov Switching unit root test. The empirical power of these tests against correctly and misspecified non-linear alternatives is analyzed by means of a Monte Carlo study. The chosen parametrization is obtained by real-life exchange rates. The test against ESTAR has low power against all alternatives whereas the proposed unit root test against a Markov Switching autoregressive model performs clearly better. An empirical application of these tests suggests that real exchange rates may indeed be explained by Markov-Switching dynamics.
    Keywords: real exchange rates, unit root test, ESTAR, Markov Switching, PPP
    JEL: C12 C22 F31
    Date: 2009–05–28
  5. By: Forte, Antonio
    Abstract: The Taylor rule has been used in many studies in order to analyse the monetary policies. In my work I focus on the Euro era and compare the ECB with other two central banks, the Fed and the BoE. A very interesting result comes out from the analysis: it seems that these central banks do not observe the inflation course before deciding about the variation of the interest rates. This result can be linked to two ideas: firstly, the use of stationary time series drops out the significance of the inflation gap as regressor; secondly, a really forward looking central bank focuses on other macroeconomic leading indicators instead of examining the realized or expected inflation gap.
    Keywords: Taylor rule; monetary policy; European Central Bank; Federal Reserve; Bank of England; Euro; Exchange rates.
    JEL: E58 E52
    Date: 2009–11

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