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on International Finance |
| By: | Jean-Philippe Cayen; Donald Coletti; Rene Lalonde; Philipp Maier |
| Abstract: | We use a novel approach to identify economic developments that drive exchange rates in the long run. Using a panel of six quarterly U.S. bilateral real exchange rates – Australia, Canada, the euro, Japan, New Zealand and the United Kingdom – over the 1980-2007 period, a dynamic factor model points to two common factors. The first factor is driven by U.S. shocks, and cointegration analysis points to a long-run statistical relationship with the U.S. debt-to-GDP ratio, relative to all other countries in our sample. The second common factor is driven by commodity prices. Incorporating these relationships directly into a state-space model, we find highly significant coefficients. Then, we decompose the historical variation of each exchange rate into U.S. shocks, commodities, and a domestic component. We find a strong role for economic fundamentals: Changes in the two common factors, which are driven by the (relative) U.S. debt-to-GDP ratio and commodity prices, can explain between 36 and 96 per cent of individual countries' exchange rates in our panel. |
| Keywords: | Exchange rates; Econometric and statistical methods |
| JEL: | J31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:10-5&r=ifn |
| By: | Sayera Younus |
| Abstract: | The objective of this study is to examine empirically the impact of monetary policy on exchange market pressure (EMP) in Bangladesh. [Bangladesh Bank WP NO. 0603]. |
| Keywords: | pressure, bangladesh, bank, monetary policy, exchange, foreign exchange, currency, market pressure, empirically, Variance, Domestic Credit Growth, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2389&r=ifn |
| By: | Rakesh Mohan; Muneesh Kapur (Asian Development Bank Institute) |
| Abstract: | Capital flows to emerging market economies (EMEs) have been characterized by high volatility since the 1980s. In recent years (especially since 2003), although gross as well as net capital flows to the EMEs have increased, they could not be absorbed domestically. Overall, savings have flowed uphill from EMEs to advanced economies, challenging the conventional view that capital flows to EMEs are always beneficial through augmentation of their resources leading to greater investment. Full capital account liberalization can impart avoidable volatility and have an adverse impact on growth prospects of EMEs. Available evidence is strongly in favor of a calibrated and well-sequenced approach to opening up the capital account and its active management, along with complementary reforms in other sectors. Greater caution is needed in the liberalization of debt flows. Despite much advice to the contrary, most EMEs manage their capital accounts actively to cushion their economies from undue volatility, including interventions in the foreign exchange markets accompanied by sterilization. Sound macroeconomic and financial policies―accompanied by prudent capital account management, greater exchange rate flexibility, purposive use of prudential regulation, and continued financial market development practiced by most Asian EMEs over the past decade―have cushioned their economies from the current global financial crisis that started in 2007. They have successfully achieved a virtuous circle of continuing growth, low and stable inflation, and financial stability. How these elements can be best combined will depend on the country and on the period: There is no “one size fits all.†Such a discretionary approach does put a great premium on the skill of policymakers and can run the risk of markets perceiving central bank actions becoming uncomfortably unpredictable. Such risk is mitigated by a record of successful management. |
| Keywords: | Emerging Market Economies, Liberalization, Regulation, Capital Flows |
| JEL: | E42 E44 E52 E58 F3 F4 G15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:2024&r=ifn |