nep-ifn 2013-04-06 papers

on International Finance

Issue of 2013‒04‒06
two papers chosen by
Vimal Balasubramaniam
University of Oxford

The impact of yuan internationalization on the euro-dollar exchange rate By Agnès Bénassy-Quéré; Yeganeh Forouheshfar
The Forward Premium Puzzle And The Euro By Nagayasu, Jun

The impact of yuan internationalization on the euro-dollar exchange rate

By:	Agnès Bénassy-Quéré (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Yeganeh Forouheshfar (Université Paris-Dauphine - Université Paris-Dauphine)
Abstract:	We study the implication of a multipolarization of the international monetary system on cross-currency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a three-country, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stock-flow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock.
Keywords:	China; yuan; exchange-rate regime; euro-dollar
Date:	2013–02
URL:	http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00801100&r=ifn

The Forward Premium Puzzle And The Euro

By:	Nagayasu, Jun
Abstract:	This paper evaluates the forward premium puzzle using the Euro exchange rate. Unlike previous studies, our analysis utilizes time-varying parameter methods and is based on two approaches for evaluation of the puzzle; the traditional approach analyzing the sensitivity of interest rate differentials to the forward premium, and the other looking into deviations from the covered interest rate parity (CIRP) condition. Then we provide evidence that the forward premium puzzle indeed became more prominent around the time of the recent crisis periods such as the Lehman Shock and the Euro crisis. This is also shown to be consistent with a deterioration in the CIRP.
Keywords:	forward premium puzzle, risk premium, time-varying parameters, financial crises
JEL:	F31 F36
Date:	2013–04
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:45746&r=ifn

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