Exchange rate and interest rate polarization

Exchange Rate and Interest Rate Polarization. - The relationship between the polarization phenomenon in foreign exhange markets and a similar regu-larity in interest rate differentials is considered. In the case of perfect substitutability and of perfect foresight, both polarizations would be perfectly complementary. Risk premia and forecast errors, however, might induce some degree of substitutability between the two concepts. Throughout almost the entire EMS experience, in France and Italy both phenomena appear to be equivalent. At the end of the 80s, however, interest rate polarization has surged at the expense of exchange rate polarization. In fact, a bias in estimates was found to explain this recent behaviour.     

Exchange rate regimes and uncertainty

Conclusion This paper examines the change in exchange rate uncertainty between the Bretton Woods and floating exchange rate periods. We estimate both the unconditional variance and the conditional variance of the DM/dollar exchange rate under each exchange rate regime. The former is estimated on the basis of the coefficient of variation and the latter on the basis of a GARCH model. Our GARCH results show that the unconditional variance greatlyunderstates the change in exchange rate uncertainty that resulted from the switch to a flexible exchange rate regime.     

Exchange rate expectations and foreign direct investment flows

Exchange Rate Expectations and Foreign Direct Investment Flows. — Theories about exchange rate expectations are difficult to check empirically. We study FDI data to find indirect evidence on the formation of exchange rate expectations by foreign direct investors. Using panel data techniques on exchange rate movements and FDI flows from the United States to 20 OECD countries we find that skewness of devaluations has a robust positive impact on FDI flows while average devaluation and its volatility do not. We view this evidence as consistent with the hypothesis that relatively large exchange rate movements generate mean-reverting long-run expectations. This finding is consistent with survey-based evidence on exchange rate expectations.     

汇率、货币政策与经济增长

一、名义汇率与实际汇率我们知道,汇率的变化会对国际贸易产生直接的影响。例如,当本币贬值时,以外币表示的本国出口商品价格下降,这使本国商品在国际市场上的竞争力增强,进而促进本国的出口增长。但是这里所说的汇率变化是名义汇率的变化还是实际汇率的变化呢?对于这个问题,我     

Exchange rate effects on a firm's output composition

Summary Goods produced for competitive markets and goods produced for imperfectly competitive markets are likely to have interdependent production costs in the sense that an increase in the price or the quantity produced of one type of good raises the costs of producing the other. Such production costs inderdependencies are ignored in the existing literature on exchange rate effects on domestic and foreign output. This article does take these interdependencies into account and shows then that exchange rate effects may be dramatically different. In particular, it is explained why aggregate output measures may be insensitive to exchange rate changes.The idea for this paper was born during a research visit to Reading. The paper was further developed benefitting from comments by Mark Casson from the University of Reading, Henk Jager and Eelke de Jong from the University of Amsterdam, and two anonymous referees. I am most grateful for their suggestions. Any remaining errors are, of course, mine.     

Exchange rate models: Do they work?

Conclusions In this paper we have examined empirically five asset-market exchange rate models: the flexible-price monetary model, the sticky-price model, the Hooper-Morton model, the stock-flow model and the portfolio balance model. Each of these models was estimated for the Deutsche mark/dollar exchange rate over the floating period. The empirical results suggest that none of the models is fully supported by the data. Our findings are similar to those of other studies [see, e.g., Backus, 1984; Boughton, 1985; Frankel, 1983; Meese, Rogoff, 1983]. The failure of various exchange rate models to explain the behaviour of the Deutsche mark/dollar exchange rate may be attributed to a number of factors, such as the instability of money demand functions observed in the U.S. and Germany in the mid-1970s¹¹, the intervention of the Bundesbank in an effort to mitigate the large fluctuations of the Deutsche mark/dollar exchange rate, and speculation, which may be increasingly important. This suggests that further theoretical and empirical work is required to resolve the issue of how best to model the exchange rate determination.     

Exchange rate volatility,international trade and labour demand

The purpose of this study is to assess under what conditions exchange rate volatility generates a positive effect on an exporting firm’s labour demand. As the exchange rate volatility increases, so does the value of the export option, provided that firms are flexible with respect to international trade. Higher volatility increases the potential gains from trade and can increase the demand for labour. The firm’s trade flexibility can be interpreted as a real hedging strategy when financial markets are incomplete. In many newly industrializing countries and emerging economies financial markets are imperfect or risk sharing markets are just starting to develop at a rather slow pace.     

Exchange rate volatility and first-time entry by multinational firms

The model and related empirical examination in this paper demonstrate one reason why previous studies document both positive and negative correlations between exchange rate volatility and observed levels of foreign direct investment. Using a simple model of cross-border mergers and acquisitions, it argues that the source of the volatility is important in resolving the puzzle. An empirical analysis of mergers and acquisitions by individual firms reveal that first-time foreign direct investment is discouraged by monetary volatility originating from the source-country, but can be encouraged by monetary volatility originating in the host country, especially when compared to domestic investment or expansion by existing multinationals. The regressions also reveal a large and positive “euro effect” on the number of first-time cross-border mergers within the European Monetary Union, even when controlling for domestic merger activity.     

Exchange rate pass-through: evidence from the Syrian economy

This paper studies the exchange rate pass-through in the Syrian economy over the period 1990Q1-2009Q4. To this end it constructs a cost of imports indicator which is used in an Autoregressive Distributed Lag (ARDL) approach. The findings point to a high and fast exchange rate pass-through effect. As a consequence, Syrian macro-economic performance is very sensitive to international price evolutions as well as depreciations of the Syrian Pound.     

日本资本项目开放与汇率政策研究

日本的资本项目开放从开始推动到最终实现,经历了30多年的时间。在资本项目开放的同时,日元汇 率也从360日元兑1美元大幅升值到2009年的平均93．62日元兑1美元。期间日本政府采取了宏观政策、资本管制、直接干预等多种手段,力求维护日元汇率稳定。有选择的渐进式开放是日本资本项目开放的主要经验,而成功的资本管制为有序开放提供了保障。日本在资本项目开放时,汇率政策与货币政策出现失误,是导致日本“失去的10年”的主要原因。中国未来的资本项目开放必须吸取日本的经验和教训。     

Exchange rate flexibility and the demand for international reserves

Zusammenfassung Wechselkursflexibilit?t und die Nachfrage nach W?hrungsreserven. — In diesem Aufsatz werden die Implikationen der sogenannten ?Quadratwurzel-Regel? für die optimale Zunahme der H?he der vorsichtshalber gehaltenen W?hrungsreserven (Sicherheitsreserven) bei einer Vergr?\erung des Handelsvolumens n?her untersucht. Dabei wird die Regel erweitert, um die Auswirkung einer erh?hten Wechselkursflexibilit?t auf die optimale H?he der Sicherheitsreserven einzubeziehen. Es wird gezeigt, da\ die von Olivera vorgeschlagene ?Quadratwurzel-Regel? (1969, 1971), die die Nachfrage nach internationaler Liquidit?t in Beziehung zum Handelsvolumen setzt, mit der ?Kubikwurzel-Regel? von Whalen (1966) vereinbar ist, wenn die Kosten eines zu geringen Bestandes an W?hrungsreserven von der H?he des Fehlbetrages abh?ngen. Die Nachfrageelastizit?t nach Sicherheitsreserven in bezug auf die Erh?hung der Wechselkursflexibilit?t (definiert als Bandbreitenerweiterung) wird auf — 1/3 bis — 2/3 gesch?tzt. Die Analyse will hervorheben, da\ in einer internationalen W?hrungsordnung die Versorgung mit internationaler Liquidit?t und der Anpassungsmechanismus simultan geregelt werden müssen.

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Résumé La flexibilité des cours de change et la demande de réserves internationales. — Cette étude continue à examiner la ?règle de racine carrée? et les implications pour le développement optimal des réserves de précaution si le volume du commerce international est augmenté et, en outre, elle étend la règle en inclusant l’impact d’une flexibilité accrue des cours de change sur les balances optimales de précaution. L’auteur démontre que la ?règle de racine carrée?, qui fut suggérée par Olivera (1969, 1971) et qui établit un rapport entre la demande officielle de réserves internationales et le volume du commerce extérieur, est compatible avec la ?règle de racine cubique? par Whalen (1966) si les co?ts d’une pénurie de réserves sont supposés d’être dépendants de l’ampleur d’une telle pénurie. L’élasticité de la demande des réserves de précaution par rapport à l’augmentation de la flexibilité des cours de change (définie comme élargissement des marges autour de la parité) est estimée à se trouver entre un tiers et deux tiers (chaque fois de signe négatif). Le but de cette analyse est de mettre l’accent sur la thèse qu’on doit résoudre simultanément les problèmes de la liquidité et de l’ajustement du système monétaire international.

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Resumen Flexibilidad de los tipos de cambio y la demanda de reservas internacionales. — Este estudio analiza la ?regla de raíz cuadrada? y sus implicaciones para el movimiento óptimo de las reservas de precauci?n cuando el volumen de comercio aumenta, y amplifica dicha regla con el fin de considerar el impacto sobre las reservas de precaución de una mayor flexibilidad cambiaria. Queda demostrado que la ?regla de raíz cuadrada? sugerida por Olivera, que relaciona la demanda por reservas internacionales oficiales con el volumen de intercambio comercial, es consistente con la ?regla de raíz cúbica? formulada por Whalen si se supone que el costo de una escasez de reservas dépende de la magnitud de tal escasez. La elasticidad de demanda de reservas de precaución con respecto a un aumento de la flexibilidad cambiaria (en forma de una banda de fluctuación ampliada en torno a la paridad) se estima que varía entre menos un tercio y menos dos tercios. El anàlisis recalca la importancia de determinar simultáneamente la liquidez y el ajuste en el sistema monetario internacional.

     

Exchange rate systems and linkages in the pacific basin

This paper analyzes the exchange rate systems of 10 Pacific Basin economies and linkages of their currencies with the major currencies. The recent advances in time series analysis, including unit root tests and cointegration tests, are utilized for this purpose. The results suggest that while many Pacific Basin developing economies are inclined to have a peg or crawling peg system and peg their currencies primarily to the U.S. dollar, the influence of the Japanese yen in this region is also strong, especially on the exchange rates of the Asian newly industrializing economies. For Australia and New Zealand, their exchange rates move in tandem.     

Exchange rate volatility and its impact on the transaction costs of covered interest rate parity

This paper provides empirical evidence on the linkage between foreign exchange market volatility and daily 90-day covered interest rate parity (CIP) conditions of the three major exchange rates against the US dollar (US$). Markov regime shifting models were utilized to generate time series of volatility regime probabilities and these were used to explain the first and second moments of the daily deviations from and the transaction cost bands around the covered parity conditions. We find a significant positive relationship between the deviations and the regime probabilities, indicating an increasing probability of higher volatility state being associated with rising deviations (both first and second moments) from the parity condition. Similar positive relationship is found for the transaction bands. Rising (falling) probabilities of high (low) volatility regimes increased the first and second moments of the bands. Furthermore, we find a higher volatility state combined with a US$ depreciation is associated with significantly higher volatility in the daily deviations than an appreciation. Also, US$ depreciation is associated with widening transaction bands. This suggests that the level of market uncertainty was higher when the US$ was depreciating.     

Exchange rate pass-through and rivalry in the Swiss automobile market

Exchange Rate Pass-Through and Rivalry in the Swiss Automobile Market. —This paper investigates the pricing rivalry among foreign automobile producers in the Swiss market. The main results from the dynamic analysis of two categories of automobiles between 1977 and 1991 are: First, the degree of exchange rate pass-through differs among source-countries despite the absence of quantitative restrictions on imports and of domestic production facilities. However, for some countries, pricing strategies show remarkable consistency across product categories and time spans. Second, the degree of exchange rate pass-through is low, especially in the market for small-size automobiles. Third, this low degree of pass-through may be attributed to a low degree of competition among foreign sellers.     

Exchange rate changes and LDC export performance under generalized currency floating

Zusammenfassung Wechselkurs?nderungen und die Exporte der Entwicklungsl?nder bei einem allgemeinen Floating. — Die meisten Untersuchungen über die Reaktion der Entwicklungsl?nderexporte auf Wechselkurs?nderungen haben sich nur mit den induzierten Preisbewegungen, die mit den Ver?nderungen der realen Wechselkurse verbunden sind, befaΒt. Das ist zwar zweckm?Βig bei festen Wechselkursen zwischen den wichtigsten W?hrungen, einige Aufmerksamkeit sollte aber auch den Ver?nderungen der relativen Preise nach einem gr?Βeren Realignment im Rahmen des gegenw?rtigen Systems des allgemeinen Floatings geschenkt werden. Dieser Aufsatz untersucht beide Aspekte der relativen Rentabilit?t im Exportgesch?ft, d. h. relativ im Hinblick auf heimische Güter und auf die mit Importgütern konkurrierenden Produkte, und deren EinfluΒ auf Entwicklungsl?nderexporte seit 1973. Die empirischen Ergebnisse zeigen, daΒ der Effekt von Realignments in der Regel kleiner war als der der beobachteten realen Wechselkurs?nderungen. Ein anderes wichtiges Resultat ist die groΒe Zahl von F?llen, in denen die Variabilit?t der realen Wechselkurse als eine signifikante erkl?rende Variable erscheint. Für verschiedene L?nder lassen die Ergebnisse vermuten, daΒ die Unsicherheit über den realen Wechselkurs für das Exportangebot wichtiger war als die Ver?nderungen in den relativen Preisen, die auf nominale Wechselkurs?nderungen und gr?Βere Realignments zurückzuführen sind.

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Résumé Les changements du taux de change et les exportations des PVD dans un monde des taux de change flottants. — La plupart des études empiriques sur les réactions des exportations des PVD aux changements du taux de change se sont exclusivement occupées des mouvements induits des prix relatifs associés avec les changements du taux de change réel. Tandis que cela est approprié sous les conditions des taux de change fixes parmi les monnaies principales, il est nécessaire de prêter attention à l’effet de prix relatif des réalignements des monnaies principales sous le système actuel des monnaies flottantes parmi les pays développés. Cet article examine les deux aspects de la profitabilité relative exportatrice, c’est-à-dire, en relation aux biens locaux et à la production des biens qui font concurrence aux importations, et de son influence sur les exportations des PVD depuis 1973. Les résultats empiriques indiquent que l’effet de prix relatif d? aux réalignements des monnaies principales a été plus petit que celui des ajustements observés du taux de change réel. Un autre résultat essentiel est le grand nombre des cas oú la variabilité du taux de change réel apparait comme variable explicative signifiante dans les régressions. Les résultats suggèrent pour plusieurs pays que l’incertitude sur le taux de change réel a été plus importante pour l’offre exportatrice que les changements des prix relatifs d?s aux ajustements des taux de change nominaux et aux réalignements des monnaies principales.

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Resumen Variaciones en el tipo de cambio y el comportamiento de las exportaciones de países en desarrollo bajo fluctuation cambiaria generalizada. — La mayoria de los estudios empiricos sobre la respuesta de las exportaciones de los pafses en desarrollo frente a variaciones en el tipo de cambio se han ocupado solamente de los movimientos de precios relativos inducidos, asociados con variaciones en el tipo de cambio real. Mientras esto es apropiado en el contexto de tipos de cambio fijos entre las monedas mas importantes, también se garantiza cierta atenci?n para el efecto de precios relativos de las realineaciones de las monedas más importantes bajo el actual sistema de fluctuaciones cambiarias generalizadas entre paises en desarrollo. En este articulo se examinaron ambos aspectos de la rentabilidad de exportacion relativa, p. ej., relativa a los bienes domésticos y a la production competitiva con las importaciones, como también su influencia sobre las exportaciones de los países en desarrollo desde 1973. Nuestros resultados empiricos indican, que el efecto de precios relativos debido a la realineaci?n de las monedas más importantes ha sido generalmente más pequeno que el ajuste observado de los tipos de cambio reaies. Otro resultado importante es el gran numéro de casos en los que la variation de los tipos de cambio reaies surge como una variable explicativa signincante en las regresiones. Para varios países los resultados sugieren que la incertidumbre del tipo de cambio real ha sido más importante para la oferta de exportation que los cambios en los precios relativos, debido a ajustes nominales del tipo de cambio y realineaciones cambiarias importantes.