nep-ifn New Economics Papers
on International Finance
Issue of 2009‒12‒11
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Nonlinearities in the Real Exchange Rate and Monetary Policy: Interest Rate Rules Reconsidered By Konstantinos D. Mavromatis
  2. Market Share and Exchange Rate Pass-through:Competition among Exporters of the Same Nationality By Yushi Yoshida
  3. Exchange Rate Misalignments at World and European Levels By Se-Eun Jeong; Jacques Mazier; Jamel Saadaoui
  4. A new approach to estimating equilibrium exchange rates for small open economies: The case of Canada By Tino Berger; Bernd Kempa
  5. The Difficulties of the Chinese and Indian Exchange Rate Regimes By Ila Patnaik
  6. Advantages of Fixed Exchange Rate Regime from a General Equilibrium Perspective By Viktors Ajevskis; Kristine Vitola
  7. Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies By Hammoudeh, S.M.; Yuan, Y.; McAleer, M.; Thompson, M.A.

  1. By: Konstantinos D. Mavromatis (University of Warwick)
    Abstract: Empirical research during the last ten years has found significant evidence in favour of a nonlinear-threshold type behaviour of the real exchange rate. Interest rate rules which include the exchange rate appear to have either an insignificant effect on or generate small coefficients for the real exchange rate. However, the empirical studies do not take into account the nonlinear behaviour of the exchange rate. The inclusion of nonlinearities in the real exchange rate could imply nonlinear behaviour in the interest rate rule, whenever the exchange rate is included. We use a two-country sticky price model to show that nonlinear Taylor-type rules where the exchange rate is included lead to lower variation in output and inflation.
    Keywords: Taylor rules, real exchange rate, nonlinearities
    JEL: E52 F41 F42
    Date: 2009–10
  2. By: Yushi Yoshida (Faculty of Economics, Kyushu Sangyo University)
    Abstract: Using a sample from January 1988 to December 2005 for exports of five Japanese major ports to six destination countries, we examine the effect of market share (with respect to competitors from the same country) on exchange rate pass-through (henceforth, ERPT). Our dataset is unique, allowing us to control for market shares among competing exporters with the same nationality. We provide empirical evidence that the effect of market shares on exchange rate pass-through is consistent with the findings of Feenstra et al. (1996), who show a non-linear relationship between market share and exchange rate pass-through. However, our evidence also indicates that the relationship between market share and exchange rate sensitively relies on market characteristics. With regard to recent studies on declining ERPT, our evidence shows that the ERPTs of Japanese exports are relatively stable over the last two decades and any observed changes are of small magnitude. Especially for the U.S., our evidence indicates that Japanese exports do not account for the recent decline in ERPT of U.S. imports.
    Keywords: Exchange rate pass-through; Local ports; Market share
    JEL: F12 F14 F31 F41
    Date: 2009–11
  3. By: Se-Eun Jeong (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jacques Mazier (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jamel Saadaoui (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII)
    Abstract: Since the mid-1990s, we observe an increase of world current account imbalances. These imbalances have only been partially reduced since the burst of the crisis in 2007. They reflect, to some extent, exchange rate misalignments, an issue which has been frequently studied in the literature. However, imbalances, which have reinforced in the 2000s, are also important inside the Euro area. This analysis cannot be reduced to simple estimates of euro misalignment at the world level because of specific constraints that exist for each member of the Euro area. This article aims to examine to what extent intra-European imbalances reflect exchange rate misalignments for each “national euro”.
    Keywords: Equilibrium Exchange Rate; Current Account Balance; Macroeconomic Balance
    Date: 2009–11–24
  4. By: Tino Berger; Bernd Kempa
    Abstract: This paper proposes a new approach to estimating equilibrium exchange rates for small open economies. We set up a simple structural model of output, the rate of in ation and the real exchange rate. These observed variables are explained by unobserved equilibrium rates as well as unobserved transitory components in output and the exchange rate. Using Canadian data over 1974-2008 we jointly estimate the unobserved components and the structural pa- rameters using the Kalman lter and Bayesian technique. We nd that Canada's equilibrium exchange rate evolves smoothly and follows a trend depreciation. The transitory component is found to be very persistent but much more volatile than the equilibrium rate.
    Keywords: equilibrium exchange rate, unobserved components, Kalman lter, Bayesian analysis, Importance sampling
    JEL: C22 G12
    Date: 2009–08
  5. By: Ila Patnaik
    Abstract: China and India have both attempted distorting the exchange rate in order to foster exports-led growth. This is described as the Bretton Woods II framework, where developing countries buy bonds in the US and keep undervalued exchange rates, in order to foster export-led growth. The costs and benefits of this approach need to factor in the extent to which monetary policy is distorted by the pursuit of exchange rate policy. In this paper, dates of structural change are identified, and the characteristics of the de facto exchange rate regime, for both countries are examined. These results utilise recent developments in the econometrics of structural change. Business cycle conditions and the short-term rate (expressed in real terms) in both India and China are also examined. [NIPFP WP No 2009-62].
    Keywords: GDP, RBI, indian, exports, china, India, exchange rte, bretton woods, US, monetary policy, developing countries, de facto, business cycle,
    Date: 2009
  6. By: Viktors Ajevskis; Kristine Vitola
    Abstract: In this paper we estimate a small open economy DSGE model for Latvia following Lubik and Schorfheide (2007) using Bayesian methods. The estimates of the structural parameters fall within plausible ranges. Simulation results suggest that under inflation targeting inflation turns out to be more volatile than under the peg in the case of Latvia. Additional concern for output stabilisation accounts for lower inflation variability while it is still higher than under existing exchange rate regime with ±1% fluctuation bands. The model results therefore support the existing exchange rate policy.
    Keywords: DSGE, small open economy, exchange rate policy, Bayesian estimation
    JEL: C11 C3 C51 D58 E58 F41
    Date: 2009–11–25
  7. By: Hammoudeh, S.M.; Yuan, Y.; McAleer, M.; Thompson, M.A. (Erasmus Econometric Institute)
    Abstract: This study examines the conditional volatility and correlation dependency and interdependency for the four major precious metals (that is, gold, silver, platinum and palladium), while accounting for geopolitics within a multivariate system. The implications of the estimated results for portfolio designs and hedging strategies are also analyzed. The results for the four metals system show significant short-run and long-run dependencies and interdependencies to news and past volatility. These results have become more pervasive when the exchange rate and FFR are included. Monetary policy also has a differential impact on the precious metals and the exchange rate volatilities. Finally, the applications of the results show the optimal weights in a two-asset portfolio and the hedging ratios for long positions.
    Keywords: multivariate;shocks;volatility;correlation;dependency;interdependency;precious metals;exchange rates;hedging
    Date: 2009–11–24

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