nep-ifn New Economics Papers
on International Finance
Issue of 2009‒11‒14
nine papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Announcement effect and intraday volatility patterns of euro-dollar exchange rate : monetary policy news arrivals and short-run dynamic response. By Mokhtar Darmoul; Mokhtar Kouki
  2. Determination of the real exchange rate of rouble and assessment of long-rum policy of real exchange rate targeting By Sossounov, Kirill; Ushakov, Nikolay
  3. Dislocations in FX Swap and Money Markets in Hong Kong and Policy Actions during the Financial Crisis of 2008 By Laurence Fung; Ip-wing Yu
  4. The Interest Rate — Exchange Rate Nexus: Exchange Rate Regimes and Policy Equilibria By Christoph Himmels; Tatiana Kirsanova
  5. Segmentation across International Equity, Bond, and Foreign Exchange Markets By Cathy Ning; Stephen Sapp
  6. The Multi-Scale Interaction between Interest Rate, Exchange Rate and Stock Price By Hamrita, Mohamed Essaied; Ben Abdallah, Nidhal; Ben Ammou , Samir
  7. Exchange Rate Regimes in the Asia-Pacific Region and the Global Financial Crisis By McKibbin, Warwick J.; Chanthapun, Waranya Pim
  8. Calendar effect and intraday volatility patterns of euro-dollar exchange rate : new evidence of Europe lunch period By Mokhtar Darmoul; Mokhtar Kouki
  9. International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence By Guglielmo Maria Caporale; Thouraya Hadj Amor; Christophe Rault

  1. By: Mokhtar Darmoul (Centre d'Economie de la Sorbonne); Mokhtar Kouki (LEGI-Ecole Polytechnique de Tunis)
    Abstract: In this article, we examine the announcement effect of news relating to the monetary policies of the ECB and the FED and resulting from the official meetings of the Council of the governors and the FOMC on intraday volatility of the foreign exchange rate euro-dollar at five minutes of intervals. The results show that the news of the monetary policy of the ECB relative to its Target interest rates are more significant and more influential on the level of intraday volatility than those of the monetary policy of the FED relative to its federal funds rate. In spite of the reduced number of these news, their effect appears statistically significant during the years of the sample of foreign exchange rate euro-dollar selected. We also introduced a polynomial structure which enables us to take into account the short-run response patterns and to highlight a possible dissymmetry in the effect of each variable of signal on the volatility of foreign exchange rate euro-dollar.
    Keywords: Announcement effect, forex, news, exchange rate.
    JEL: C15 E44 F31 G14
    Date: 2009–08
  2. By: Sossounov, Kirill; Ushakov, Nikolay
    Abstract: The equilibrium real exchange rate of Russian ruble is estimated for the period from the beginning of 1995 to the beginning of 2008. According to the methodological approach proposed by Edwards (1988) the equilibrium real exchange rate is a function of a set of fundamental variables (so-called “reduced form equation”). In order to estimate an equilibrium real exchange rate a set of fundamentals was selected: terms of trade, productivity differential, fiscal policy variable. Estimation was performed in a cointegrated VAR framework using the Johansen cointegration test. The speed of adjustment of the actual real exchange rate to the equilibrium real exchange rate as well as the influence of monetary policy and private capital flows on the short-run dynamics of real exchange rate is explored.
    Keywords: macroeconomics; real exchange rate; Russia
    JEL: C51 E00
    Date: 2009–05–01
  3. By: Laurence Fung (Research Department, Hong Kong Monetary Authority); Ip-wing Yu (Research Department, Hong Kong Monetary Authority)
    Abstract: When US dollar interbank markets malfunctioned during the global financial crisis of 2008, many non-US financial institutions relied heavily on the foreign-exchange (FX) swap markets for US-dollar funds. This one-sided market induced a risk premium of the FX swap-implied US-dollar rate across a range of funding currencies, i.e. a deviation from the covered interest parity (CIP) condition. The turbulence in the global interbank markets therefore spilled over to the FX swap markets, including that in Hong Kong. This paper analyses the effectiveness of the policy actions taken by the Hong Kong Monetary Authority and the Government in responding to the dislocations and stress in the local interbank and FX swap markets. Our results show that the policy actions effectively ameliorated the FX swap market dislocations after the failure of Lehman Brothers, i.e. reducing the CIP deviations.
    Keywords: FX swaps; Covered interest parity; interbank stress; Exponential GARCH
    JEL: F31 G14 G15
    Date: 2009–10
  4. By: Christoph Himmels; Tatiana Kirsanova
    Abstract: We study a credible Markov-perfect monetary policy in an open New Keynesian economy with incomplete finacial markets. We demonstrate the existence of two discretionary equilibria. Following a shock the economy can be stabilised either 'quickly' or 'slow', both dynamic paths satisfy conditions of optimality and time-consistency. The model can help us to understand sudden change of the interest rate and exchange rate volatility in 'tranquil' and 'volatile' regimes even under a fully credible 'soft peg' of the nominal exchange rate in developing countries.
    Keywords: Small Open Economy, Incomplete Financial Markets, Discretionary Monetary Policy, Multiple Equilibria.
    JEL: E31 E52 E58 E61 C61 F4
    Date: 2009–08
  5. By: Cathy Ning (Department of Economics, Ryerson University, Toronto, Canada); Stephen Sapp (Ivey School of Business, University of Western Ontario, London, Ontario, Canada)
    Abstract: In this paper, we examine the integration of international financial markets. The integration of financial markets across countries and across asset classes is assumed to hold in most empirical studies, but has only been tested for certain countries and certain asset classes. We test for the integration of international equity, bond and foreign exchange markets. Our results indicate that the three classes of assets are segmented. Investigating potential explanations for this segmentation, we find that there are differing degrees of segmentation across these markets and that this is related to the asset returns from each class being explained by different sets of economic risk factors. In pair-wise tests we find that the bond-equity and bond-foreign exchange markets appear to be more segmented than the equity-foreign exchange market.
    Keywords: Market integration; GMM; Stochastic discount factor models; Hansen and Jagannathan distance
    JEL: G15 G12
    Date: 2009–11
  6. By: Hamrita, Mohamed Essaied; Ben Abdallah, Nidhal; Ben Ammou , Samir
    Abstract: This paper examines the multi-scale relationship between the interest rate, exchange rate and stock price using wavelet transform. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to the interest rate, exchange rate and stock price for US over the period 1990:1- 2008:12 and using the definitions of wavelet variance, wavelet correlation and cross-correlations analyze the association as well as the lead/lag relationship between these series at the different time scales. Our results show that the relationship between interest rate and exchange rate is not significantly different from zero at all scales. On the other hand, the relationship between interest rate returns and stock index returns is significantly different zero only at the highest scales. The exchange rate returns and stock index returns have a relationship bidirectional in this period at longer horizons.
    Keywords: Wavelet analysis; Interest rate; Stock price; Wavelet cross-correlation; Granger causality.
    JEL: C02 F31 C01
    Date: 2009–10–09
  7. By: McKibbin, Warwick J. (Australian National University); Chanthapun, Waranya Pim (Australian National University)
    Abstract: Rising economic integration in Asia and periodic volatility in global and national financial markets raise the issue of the optimal degree and form of monetary cooperation among Asian economies. There is a large literature on the benefits and costs of monetary cooperation, however, less can be found with a specific focus on Asia. A number of studies have explored whether Asia might form an optimal currency area, although these have focused on the nature of shocks, in particular business cycle correlations, as well as the extent of trade linkages among economies. Less has been done on the impact of portfolio shifts and financial shocks, and how these shocks impact on financial cooperation. <p> This paper has two goals. The first is to explore the impacts of the current global financial crisis on Asian economies under existing monetary and exchange rate arrangements. The second is to explore how alternative forms of cooperation and exchange rate regimes might change the economic outcomes in Asia. In particular, the paper explores the impact of current regimes compared to one of three hypothetical regimes: (i) all countries peg to the US dollar, (ii) all Asian economies are in an Asian Currency Union with an Asian Central Bank setting policy, or (iii) floating exchange rates with each central bank in Asia independently choosing optimal time-consistent, close-loop policy rules to target a loss function consisting of deviation in inflation and output growth from desired levels.
    Keywords: Monetary cooperation; exchange rates; financial crisis
    JEL: E27 E42 E44 E52 E58 F41 F42
    Date: 2009–10–01
  8. By: Mokhtar Darmoul (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Mokhtar Kouki (LEGI - Ecole Polytechnique de Tunisie)
    Abstract: Dans cet article, nous étudions le comportement ainsi que les caractéristiques systématiques de l'effet calendrier perus dans la volatilité du taux de change intrajournalière de l'euro face au dollar à cinq minutes d'intervalles. Nous obtenons par le biais de cette analyse une différenciation de ces effets à travers deux types de filtres essentiels dans le traitement des rendements, tout en éliminant la forme de fourrier FFF qui condamne les structures de persistance des chocs à prendre une forme exponentielle. Ainsi, nous avons ressorti de nouvelles caractéristiques de la volatilité du taux de change euro-dollar, telle que l'heure de déjeuner en Europe.
    Keywords: Cycle commercial ; effet calendrier ; forex ; taux de change.
    Date: 2009–08
  9. By: Guglielmo Maria Caporale; Thouraya Hadj Amor; Christophe Rault
    Abstract: The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries.
    Keywords: emerging economies, real exchange rate, financial integration, misalignment, second-generation panel unit-root and cointegration tests
    JEL: E31 F0 F31 C15
    Date: 2009

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