Time-series properties and predictability of Greek exchange rates

This paper explores the time-series properties and predictability of weekly percentage changes in the Greek drachma exchange rates with respect to the currencies of major trading-partner countries, such as the USA, Germany, the UK, France, Italy and Japan. The analysis is carried out using the EGARCH-M model along with the power exponential distribution. Percentage changes in the Greek drachma with respect to the German mark, the French franc, the Italian lira and Japanese yen are predictable using past information. The volatility of Greek exchange rates is best represented by an EGARCH process and as such is predictable using past volatility measures. Moreover, volatility of the Greek drachma with respect to the German mark and Italian lira positively influences future movements in these exchange rates. The hypothesis that volatility is an asymmetric function of past innovations is rejected in all cases. Following the inclusion of the Greek drachma in the ECU currency basket, its value has been depreciating at a higher rate with respect to the German mark and Italian lira and at a lower rate with respect to the US dollar. Also, its volatility with respect to the German mark, the French franc, and the Italian lira has decreased, whereas its volatility with respect to the US dollar has increased.     

Exchange rate determination: Empirical evidence for the Greek drachma

We examine the monetary approach to the exchange rate from several perspectives, using monthly data on five Greek bilateral exchange rates. Using the Johansen multivariate cointegration technique we demonstrate that the monetary model is validate as a long-run relationship. Moreover, upon imposing the long-run monetary model restrictions we find that the proportionality of the exchange rate to relative monetary aggregates is accepted for the bilateral exchange rate of the Greek drachma with respect to the US dollar, the deutschemark, the pound sterling, the French franc and the Italian lira. Finally, using the Hansen-Johansen (1993) testing procedure, we reject the hypothesis of sample independency of the dimension of the cointegration space in all cases, apart from the German one, but we accept the hypothesis that the estimated coefficients do not display instabilities in recursive estimations.     

Testing the unbiased forward exchange rate hypothesis using a Markov switching model and instrumental variables

This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing the unbiased forward exchange rate (UFER) hypothesis. Using US/UK data, it is shown that the UFER hypothesis cannot be rejected, provided that instrumental variables are used to account for within‐regime correlation between explanatory variables and disturbances in the Markov switching model on which the test is based. Copyright © 2005 John Wiley & Sons, Ltd.     

The time-series properties of the risk premium in the Yen/Dollar exchange market

In this paper a VAR model is employed to construct a measure of the conditional expectations of the future yen/dollar spot rate. This measure allows us to examine the dynamics of an ex-ante time-series for the risk premium in the market. The VAR model produces ‘better’ forecasts than the survey responses for turbulent periods such as 1981–1982 and 1984–1985. The VAR-generated expectations are then used to construct a risk premium time-series. This risk premium series seems to be more reliable than the ones obtained using either survey data on expectations of the future spot exchange rate or the ex-post realized spot exchange rate. Tests on the risk premium series suggest that a risk premium was present, but that it was virtually constant throughout the sample. The conditional variance of the risk premium changed over time, but its unconditional distribution seemed stable across subsamples. Despite these features, the volatility of the series was substantial and varied considerably throughout the sample.     

Comparing exchange rate forecasting models: Accuracy versus profitability

In this paper we compare the rankings of alternative exchange rate forecasting models using two different evaluation criteria: forecast accuracy and profitability in forward market speculation. Either or both of these criteria may be useful to the practitioner depending on the forecasting application. We use both time-series and static and dynamic structural models to construct forecasts for the Canadian dollar/U.S. dollar and German mark/U.S. dollar exchange rates over the period 1976 :12–1984: 9. Our results confirm earlier findings that simple time-series models such as the random walk rank highest in forecast accuracy. The random walk also ranks high in terms of profitability for the German mark, but for the Canadian dollar the profitability rankings are quite different than the accuracy results. For both currencies we find that some models are very profitable in forward speculation, which is evidence against the speculative efficiency hypothesis but may be consistent with the existence of risk premia in foreign exchange markets.     

An examination of the forward prediction error of U.S. dollar exchange rates and how they are related to bid-ask spreads,purchasing power parity disequilibria,and forward premium asymmetry

Using a panel data approach, we find statistically significant evidence that bid-ask spreads and deviations from purchasing power parity (PPP) are related to the forward prediction error of ten major U.S. dollar exchange rates over the post Plaza Accord period. Previous literature suggests that bid-ask spreads proxy for liquidity risk and deviations from PPP are a source of time-varying risk premiums. Additionally, the paper provides evidence that the forward discount bias is asymmetric with respect to the sign of the forward premium as well as to an undervalued and overvalued U.S. dollar.     

The relative size of exchange rate and interest rate responses to news: An empirical investigation

This paper examines the relative size of the effects of macroeconomic news on the spot exchange rate, and interest rate differentials (2- and 5-year swap rate differentials), and the synthetic forward exchange rate schedule, for the high-frequency New Zealand data. We find that the spot exchange rate and 5-year swap rates respond by a similar magnitude to monetary surprises, implying there is little response of the forward exchange rate to this type of news. In contrast, the spot exchange rate responds by nearly three times as much as 5-year interest rates to CPI and GDP surprises, implying that forward rates appreciate to higher than expected CPI or GDP news. This is in contrast to standard theoretical models and US evidence. Lastly, we show that exchange rates but not interest rates respond to current account news. The implications of these results for monetary policy are considered.     

Understanding spot and forward exchange rate regressions

Using the Kalman filter, we obtain maximum likelihood estimates of a permanent–transitory components model for log spot and forward dollar prices of the pound, the franc, and the yen. This simple parametric model is useful in understanding why the forward rate may be an unbiased predictor of the future spot rate even though an increase in the forward premium predicts a dollar appreciation. Our estimates of the expected excess return on short-term dollar-denominated assets are persistent and reasonable in magnitude. They also exhibit sign fluctuations and negative covariance with the estimated expected depreciation. © 1997 John Wiley & Sons, Ltd.     

The transmission of US economic policy uncertainty shocks to Asian and global financial markets

This paper proposes a novel approach to investigating the spillover effects of US economic policy uncertainty shocks on the global financial markets. Employing a factor-augmented vector autoregression (FAVAR), we model US economic policy uncertainty jointly with the latent factors extracted from equity prices, exchange rates, and commodity prices. We find that US economic policy uncertainty affects these factors significantly. A country-level analysis shows heterogeneous responses to an increase in US economic policy uncertainty. With regard to equities, US economic policy uncertainty adversely affects equity prices. However, its impact on the Chinese equity market is relatively small. As for foreign exchange markets, while many currencies depreciate in response to an increase in US economic policy uncertainty, the US dollar and the Japanese yen appreciate, reflecting their safe-haven status. The Chinese yuan, whose nominal exchange rate is closely linked to the US dollar, also appreciates in response to uncertainty shocks.     

Predictability in international stock returns using currency fluctuations and forward rate forecasts

We find that currency risk, specifically dollar exchange rate risk, is a determinant in firm stock returns worldwide. Firms exposed to various dollar exchange rate risks worldwide exhibit strong differences in expected returns, and firms with previously high sensitivity to their home country’s exchange rate fluctuation subsequently outperform during the following six to twelve months. This effect is robust across countries, time, exchange rate policies, and macroeconomic environments. We find that information in currency forward rates provides additional, useful information when predicting future returns of these currency-sensitive firms, and dynamic, state-space estimation of currency forward rate term structures complements the predictability.     

Forecasting foreign exchange rates: an expert judgment approach

Studies have indicated that forecasts by market experts can be more accurate than time series forecasts. This article describes a process for structuring an expert foreign exchange forecast using Saaty's Analytic Hierarchy Process (AHP). The specific example developed is a forecast of the yen/dollar spot exchange rate from the standpoint of a company considering the desirability of arranging for forward exchange cover.     

Oil prices,stock returns,and exchange rates: Empirical evidence from China and the United States

Employing the diagonal BEKK model as well as the dynamic impulse response functions, this study investigates the time-varying trilateral relationships among real oil prices, exchange rate changes, and stock market returns in China and the U.S. from February 1991 to December 2015. We highlight several key observations: (i) oil prices respond positively and significantly to aggregate demand shocks; (ii) positive oil supply shocks adversely and significantly affect the Chinese stock market; (iii) oil price shocks persistently and significantly impact the trade-weighted US dollar index negatively; (iv) the US and China stock markets correlate positively just as the dollar index and the exchange rate does; (v) a significant parallel inverse relation exists between the US stock market and the dollar and between the China stock market and the exchange rate; and (vi) the Chinese stock market is more volatile and responsive to aggregate demand and oil price shocks than the US stock market in recent years.     

The impact of the shutdown policy on the asymmetric interdependence structure and risk transmission of cryptocurrency and China’s financial market

By taking Bitcoin, Litecoin, and China’s gold and RMB/US dollar exchange rate market as research objects, this paper apply the MF-ADCCA and time-delayed DCCA methods to study the impact of China’s mainland shutdown of cryptocurrencies trading on the non-linear interdependent structure and risk transmission of cryptocurrencies and its financial market. Empirical results show that the cross-correlation between cryptocurrencies and China’s financial market has a long memory and asymmetric multifractal characteristics. After the shutdown, the long memory between cryptocurrencies and Chinese gold has weakened, and the long memory between cryptocurrencies and the RMB/US dollar exchange rate market was strengthened. China’s shutdown policy has a certain risk prevention effect. Specifically, after the implementation of the policy, the risk transmission of cryptocurrencies to China’s financial market has weakened, but the influence of China’s financial market has gradually strengthened.     

Evidence on purchasing power parity from univariate models: the case of smooth transition trend‐stationarity

Recent research has found that trend‐break unit root tests derived from univariate linear models do not support the hypothesis of long‐run purchasing power parity (PPP) for US dollar real exchange rates. In this paper univariate smooth transition models are utilized to develop unit root tests that allow under the alternative hypothesis for stationarity around a gradually changing deterministic trend function. These tests reveal statistically significant evidence against the null hypothesis of a unit root for the real exchange rates of a number of countries against the US dollar. However, restrictions consistent with long‐run PPP are rejected for some of the countries for which a rejection of the unit root hypothesis is obtained. Copyright © 2005 John Wiley & Sons, Ltd.     

Carry-trades on the yen and the Swiss franc: are they different?

Using monthly data from 1986 to 2009 for 11 major currencies against the U.S. dollar (USD), we find that interest rate differentials between nine of these currencies are generally positive (sample mean of 0.86%) but are strongly negative for Japan (mean of ?2.78%) and for Switzerland (mean of ?2.22%). Investigating empirical models of nominal exchange rate changes we find for all panels that about 2% of real exchange rate misalignments are corrected in the following month. We also find important differences across samples and for the two carry-trade currencies the key results are as follows. First, interest rate differentials have a negative impact on exchange rates: higher paying currencies should appreciate, contrary to the ex-ante uncovered interest rate parity (UIP) condition. We find that this result is very robust to money supply (M1) differentials serving as instrumental variables to inflation rates. In addition, these two currencies depreciate slightly when money supply (M1) differentials increase. Second, dummy variables for periods of market turmoil suggest a particularly strong appreciation of these currencies against the USD, consistent with the unwinding of carry-trade activities.     

人民币实际有效汇率的分解和马歇尔—勒纳条件的修正

马歇尔-勒纳条件是探讨货币贬值改善贸易收支的规律,本文根据人民币实际有效汇率的特点,把它分解为美元有效汇率和人民币对美元汇率之积形式,在此基础之上,本文重新考察货币贬值改善贸易收支的条件,对传统的马歇尔-勒纳条件进行修正。从我们研究中可以看出美元实际有效汇率变化对马歇尔-勒纳条件修正的重要作用,这包括美元有效汇率对人民币汇率弹性和人民币在美元有效汇率中的权重的两种影响。另一方面,即使人民币实际有效汇率贬值存在“J”曲线效应,人民币对美元实际汇率贬值,“J”曲线是否存在还要依赖一定的条件。本文实证研究结果显示出口（或进口）与人民币对美元实际汇率、美元实际有效汇率指数和外国收入（或国内收入）之间存在着显著的协整关系,美元实际有效汇率和人民币对美元实际汇率也存在显著的协整关系。从弹性的变化来看,修正的马歇尔-勒纳条件成立,同时人民币对美元实际汇率贬值有利于改善贸易收支,美元实际有效汇率贬值会恶化中国贸易收支。而对“J”曲线效应的实证研究显示无论是人民币实际有效汇率,还是人民币对美元实际汇率贬值和美元实际有效汇率贬值,我国“J”曲线效应均不显著。     

Structural breaks and GARCH models of exchange rate volatility

We investigate the empirical relevance of structural breaks for GARCH models of exchange rate volatility using both in‐sample and out‐of‐sample tests. We find significant evidence of structural breaks in the unconditional variance of seven of eight US dollar exchange rate return series over the 1980–2005 period—implying unstable GARCH processes for these exchange rates—and GARCH(1,1) parameter estimates often vary substantially across the subsamples defined by the structural breaks. We also find that it almost always pays to allow for structural breaks when forecasting exchange rate return volatility in real time. Combining forecasts from different models that accommodate structural breaks in volatility in various ways appears to offer a reliable method for improving volatility forecast accuracy given the uncertainty surrounding the timing and size of the structural breaks. Copyright © 2008 John Wiley & Sons, Ltd.     

人民币汇率变动研究——基于人民币对美元和非美元货币汇率的分析

目前随着美元币值的变化,人民币对美元小幅贬值或升值,但人民币对非美元货币的贬值或升值则往往相反,这种变化使得我们对人民币币值的变化难以把握.本文研究人民币对美元和非美元汇率变动,并在此基础上研究人民币有效汇率指数变化;根据人民币有效汇率指数,构建人民币核心汇率指数并分析其变动及意义.本文认为,人民币汇率目标主要侧重于人民币对美元汇率,而人民币对非美元货币汇率波动有更大的弹性,因此,如果央行以人民币有效汇率为目标,则能够确定每天人民币对美元汇率的中间价,真正建立人民币参考一篮子货币的汇率目标.     

Asymmetric effects of exchange rate changes on Turkish bilateral trade balances

Previous studies that have assessed the short-run and the long-run effects of exchange rate changes on Turkey’s trade balance with its major partners relied upon a linear adjustment process that could not find much support for favorable effects of exchange rate changes. In this paper, once we separate real appreciations from real depreciations via the partial sum concept and introduce nonlinearity into the estimation and testing procedure, we show that the effects of exchange rate changes are asymmetric. More precisely, while lira appreciation does not have any significant effects on Turkey’s bilateral trade balances, lira depreciation has significantly favorable effects on Turkey’s trade balance with its European partners (France, Germany, Italy, Portugal, and Great Britain).     

The impact of deviation from relative purchasing power parity equilibrium on U.S. foreign direct investment

Analyzing inbound and outbound foreign direct investment (FDI) between the U.S. and seven developed countries over the period from 1994 to 2004, this study provides strong evidence for a positive relationship between aggregate FDI flows and a strengthening of a home currency. Further, taking exchange rate disequilibrium into account, we find that an increase in U.S. inbound FDI is related to a strengthening of an undervalued and overvalued U.S. dollar, while an increase in U.S. outbound FDI (foreign inbound FDI) is mainly related to a strengthening of an overvalued foreign currency. Disaggregate FDI flow data show that these findings hold mainly for the manufacturing (food and machinery) and the wholesale industry. We argue that our findings may provide evidence for a co-existence of the wealth-effect hypothesis and a more profit and production oriented hypothesis, once the U.S. dollar is undervalued. Additionally, the results support the argument that the profit and production oriented hypothesis dominates the wealth effect in developed countries, especially in the manufacturing and wholesale industry. Moreover, the results support the view that foreign investors are interested in how overvalued or undervalued a currency is, rather than being interested only in the recent direction of change in the exchange rate. Finally, all findings are robust with respect to several estimation procedures.