Nonlinear Dynamics in Expectations: An Empirical Study

The paper investigates whether expectations data are consistent with nonlinear dynamics possibly involving deterministic chaos. Survey data on exchange rate expectations for four different currencies over one‐week and one‐month prediction horizons are considered. The evidence indicates that one cannot neglect the possibility of nonlinear dynamics underlying the erratic behaviour of expectation data, even though the evidence in that respect is not overwhelming.     

Is it possible to be too risk averse? Considerations for financial management in the public sector

Within the financial management discipline, risk aversion is viewed as ‘secure’ and ‘responsible’. Yet, frequently risk aversion is associated with delays, failure to take action, decreased employee morale and stakeholder frustration. This article considers the role of risk aversion within the public sector and questions whether the risk-averse nature of the organization, coupled with risk-averse leaders can result in negative outcomes for the agency. The article concludes that while risk aversion is important, there are actions that a risk-averse leader can take to minimize the implications of risk-averse behaviour on the organization as a whole.     

Modeling nonlinear Granger causality between the oil price and U.S. dollar: A wavelet based approach

In this paper, we use a wavelet approach to study the linear and nonlinear Granger causality between the real oil price and the real effective U.S. Dollar exchange rate. Instead of analyzing the time series at their original level, as it is usually done, we first decompose the two macroeconomic variables at various scales of resolution using wavelet decomposition and then we study the relationships among the decomposed series on a scale by scale basis. A major finding of this paper is that the linear and nonlinear causal relationships between the real oil price and the real effective U.S. Dollar exchange rate vary over frequency bands as it depends on the time scales. Indeed, there is a strong bidirectional causal relationship between the real oil price and the real dollar exchange rate for large time horizons, i.e. corresponding to fundamentalist traders, especially fund managers and institutional investors. But, for the first frequency band which corresponds to a class of traders whom investment horizon is about 3-months and whom trading is principally speculative (noise traders), the causality runs only from the real oil prices to real effective U.S dollar exchange rate.     

双边贸易、外汇市场规模、网络外部性与美元的国际地位——基于国别(地区)市场的实证研究

美元堪称世界的"霸权"货币,其地位的维持要借助在位货币的优势和外力支持,本文通过面板模型对美元国际地位的影响因素进行了实证分析。在静态面板模型中发现,一国(地区)同美国的实际进出口贸易额、一国(地区)外汇市场规模对美元的国际地位均产生重要的正面影响,这表明一国(地区)与美国的实际进出口贸易额越大或一国(地区)外汇市场越发达,该国(地区)对美元的需求量越大。随后的动态面板模型不仅支持了上述结论,而且发现前一期外汇市场的实际货币交易量也是影响美元充当主要国际货币的重要因素,一国(地区)前一期外汇市场的实际货币交易量越大,其越青睐于持有美元,美元在该国(地区)的地位就越高。这一结论证实了网络外部性效应所发挥的重要作用。     

A new classical econometric model of the world economy

The widespread recognition of international interdependence and the desire for better coordination of economic policies among national entities has motivated, during the past decade, attempts to build, improve, and operate a large number of linked multicountry models. In this paper we describe the structure and properties of the Liverpool world model, a rational expectations model with endogenous capital flows and exchange rates. The key difference between the Liverpool world model and most other multicountry models currently in use is the imposition of rational expectations and the modelling of wealth effects; other changes, such as equilibrium wage/price equations and perfect capital mobility are also important and do make differences in either dynamic behaviour or impact effects, but with or without them the model exhibits behaviour that is of the ‘New Classical’ type.     

Macroeconomic expectations and time varying heterogeneity:evidence from individual survey data

ABSTRACT

The goal of this paper is to investigate forecast heterogeneity and time variability in the formation of expectations using disaggregated monthly survey data on macroeconomic indicators provided by Bloomberg from June 1998 to August 2017. We show that our panel of forecasters are not rational and are moderately heterogeneous and thus confirm that previously well-established results on asset prices hold for macroeconomic indicators. We propose a flexible hybrid forecast model defined at any time as a combination of the extrapolative, regressive, adaptive and interactive heuristics. Controlling for endogenous structural breaks, we find that experts adjust their forecast behaviour at any time with some inertia in extrapolative and adaptive profiles. Changes in the formation of expectations are triggered mostly by financial shocks, and uncertainty is dealt with by using complex processes in which the fundamentalist component overweighs chartist activity. Forecasters whose models combine different relevant rules and display high temporal flexibility provide the most accurate forecasts. Authorities can then stabilize the domestic markets by encouraging fundamentalists’ forecasts through increased transparency policy.     

The Monetary Approach to the Exchange Rate Determination for a “Petrocurrency”: The Case of Norwegian Krone

This paper, by following vector error correction modeling, empirically investigates some of the popular monetary models of the NOK/USD rate. The empirical results suggest that there is some scope for the monetary approach to explain the development of the NOK/USD during the period from 1997 to 2008. The coefficients in the co-integration equation of both money and output differentials are statistically significant and consistent with any of the forms of the monetary models. Moreover, empirical evidence for the proportionality between the exchange rate and relative money is provided. Our findings are robust across different measures of inflation expectations. Although there is no clear evidence regarding the exact version of the monetary model, the estimated unrestricted error correction models can fit the actual NOK/USD exchange rate. Finally, the short-term dynamics of the exchange rate are significantly affected by changes in crude oil prices.     

Value,Distribution and Capital: A review essay

This article identifies two possible alternative approaches to questions of exchange rate policy within a broadly keynesian frame work. One argument is that the implementation of keynesian’ policies in single jurisdiction requires a ‘managed’ or ‘dirty’ float, while the other would stress the benefits of a greater degree of nominal exchange rate stability as a means of reducing uncertainty and the volatility of expectations. We argue in favour of the former, on the grounds that it will not be possible to pursue a lsquo;cheap money’ policy to reduce real interest rates in a single jurisdiction unless there is some room to manoeuvre on exchange rates. A ‘fixed but adjustable’ exchange rate regime is less attractive because of the potential for deflationary bias in a hegemonic system with fixed exchange rates. Also, the politicization of exchange rate policy in such an environment makes necessary adjustments, particularly in a reflationary direction, more difficult than they otherwise would be. The recent history of the ERM in Europe provides examples of both phenomena.     

Weights and Empirical Analysis of RMB Exchange Rate Adjustments with Reference to a Basket of Currencies Following the Exchange Rate System Reform of 2010

This paper constructs an RMB/USD exchange rate index and a basket currency exchange rate index. The correlation maximization of the RMB/USD and the basket currency index may determine the weight and quantity of the basket currency. The currency basket indicates that the weight of the USD is highest, whereas that of the GB Pound is the lowest. Our currency basket has a high linear dependence on that of the central bank. We found that the RMB/USD and currency basket indices have a long-term co-integration relationship according to the optimal currency weights. The results of the error-correcting model manifest as the RMB/USD exchange rate deviates from the long-term equilibrium level, wherein 76.3% will be corrected. This paper checks the prediction capacity, which indicates the good fit of the model. By using the Granger causality test the findings show that the People＇s Bank of China adjusts the RMB/USD exchange rate with reference to the currency basket.     

汇率收益率及其收益波动率存在长记忆性吗?——基于人民币汇率和欧元汇率的经验分析

长记忆性研究一直是金融实证研究的一个热点,但过去多数研究主要集中于资本市场。汇率收益率的长记忆性将影响外汇市场的有效性,汇率收益波动率的长记忆性则可能对汇率风险及汇率未来变化产生作用。基于此,本文选择人民币兑美元汇率、欧元兑美元汇率作为研究对象,运用经典重标极差分析法、重标方差分析法及小波方差分析法分别考察它们的收益率和收益波动率序列的长记忆性。研究结果表明:人民币汇率收益率存在长记忆性,而欧元汇率收益率不存在长记忆性;两种汇率收益波动率都存在显著的长记忆性特征,但人民币汇率收益波动率的非周期循环天数长于欧元汇率收益波动率。结论说明了欧元汇率发展的成熟以及人民币汇率形成机制的相对低效,并为追踪汇市行为特征及制定外汇政策提供了新的视角。     

外汇市场深度、网络外部性与美元的国际地位——基于分国别与地区面板数据的实证研究

尽管美元的未来存在不确定性,但从现况来看尚无任何货币具备超越美元的实力,对美元地位的短期走势并不能作出简单的判断.作者运用面板数据模型对美元国际地位的影响因素进行了实证分析.结果表明,一国外汇市场的发达程度对美元国际地位的确定产生了重要的正面影响:一国外汇市场越发达,其越青睐于持有美元;另外在动态面板数据模型中,前一期外汇市场的实际货币交易量也是决定美元国际地位的显著因素,并且前-期外汇市场的实际货币交易量越大,该国对美元的需求量越大.这一结论证实了网络外部性效应的存在.     

Intraweek and intraday trade anomalies: evidence from FOREX market

In this article, we search for the evidence of intraweek and intraday anomalies on the spot foreign exchange (FOREX) market. Having in mind the international scope of this market, empirical evidence against market efficiency (i.e. market anomalies) will have important consequences for the substantial number of FOREX investors all around the globe. We explore intraweek, intraday and interaction between days and hour trade anomalies on the FOREX market over the period of 10 years using hourly time-series data of Euro and US Dollar (EUR/USD) exchange rate on Swiss FOREX market from 1 January 2004 to 11 January 2014. We compare by analysis of variance test all pairs of mean returns on a daily, hourly and daily/hourly basis. t-Test is used to test whether intraday returns are significantly different from zero. We employ Tukey’s honestly significant difference test to explore which intraday pairs of hourly mean returns are significantly greater than zero. We find that intraday and interaction between day and hour anomalies are present in trading EUR/USD on the spot FOREX market over the period of 10 years. The best arbitrage opportunity is evidenced on Fridays, when selling USD and buying EUR at 00:00 and selling EUR and buying USD at 03:00 the same day.     

Religeopolitics: Dissident geopolitics and the ‘fundamentalism’ of Hamas and Kach

This article highlights the close relationship of religion and geopolitics in general and within religious fundamentalist ideologies in Palestine/Israel in particular. A new concept of ‘dissident geopolitics’ is used to circumvent state‐centrism of Tuathailian critical geopolitics and, furthermore, a new theoretical framework of ‘religeopolitics’ is elaborated and utilised in the following case study to pinpoint the geopolitical core within the ideologies of the movements of Hamas and Kach. Both movements are violent, ‘fundamentalist’ and claim the Other to be the enemy and the self to be the rightful owner of the territory of Palestine/Israel. The case study also shows how violence is legitimised in relation to religion and geopolitics. Finally, suggestions are given to expound religeopolitics within other areas of IR scholarship, more related to each other than ever in the post‐11 September world.     

Are momentum traders different? Implications for the momentum puzzle

This article examines the puzzlingly high unexploited momentum returns from a new perspective. We analyse characteristics of momentum traders in a sample of 692 fund managers. We find that momentum traders are ‘defined’ by their short-term horizon, by a behavioural view on the market and by a somewhat lower degree of risk aversion, whereas they are like other fund managers with respect to sophistication. This is consistent with the interpretation that momentum returns may compensate for the risk of momentum trading on short-term horizons and that the short-term oriented momentum traders are not in a position to perform long-term arbitrage.     

The information content of implied volatility in developed versus developing FX markets

This article predicts the daily movement of monthly foreign exchange (FX) rate volatility using a linear combination of a time-series model and implied volatilities from options. The focus is on analysing the FX volatilities in three developing economies (the Brazilian real (BRL), the Indian rupee (INR) and the Russian ruble (RUB)) against the US dollar (USD). The empirical exercise utilizes two time-series models, mixed data sampling (MIDAS) and GARCH. The analysis indicates that for both developed and developing economies the predictive power of MIDAS and that of GARCH is comparable. Further on in this article, we will ascertain whether the relationship between realized and implied volatility is fundamentally different in the case of developing economies from that among developed economies. Thus, we compare the pairs USD/BRL, USD/INR and USD/RUB against EURO/USD and USD/Japanese yen to determine the information content and predictive power of implied volatilities. Plots of the MIDAS coefficients show that the volatility is more persistent in developing economies than in developed economies.     

Intertemporal consumer behaviour in developing countries

This paper explores aggregate consumption behaviour in four developing countries under the assumption that consumers' planning horizons do not extend over their expected lifetime. Under certain conditions, the resulting ‘moving planning horizon model’ suggests that changes in current income would exert considerably more influence over current consumer spending than is predicted by forward-looking theories of consumption which typically assume that consumers' planning horizons coincide with expected lifetime. Estimation of the model for the group of developing countries provides empirical support for the role of changes in current income in influencing the consumption process. The results also reveal that consumers are relatively short-sighted sinced the length of the planning period of consumers ranges from just over ten months. An important implication of these findings is that policy measures can be effective not only if they influence consumers' permanent incomes but also if they affect changes in current income.     

Sterilised Interventions within a Heterogeneous Expectation Exchange Rate Model: Evidence from the Reserve Bank of Australia

In this article, we study the effectiveness of central bank intervention within a heterogeneous expectation exchange rate model for the Reserve Bank of Australia. The empirical evidence is gathered by applying a Markov‐switching approach to daily A$/US$ exchange data from December 1983 to April 2008. Our results support both chartist and fundamentalist regimes. It is shown that the two regimes are persistent and that the fundamentalist regime is riskier. Moreover, interventions when the chartist regime prevails increase the proportion of fundamentalists and thus exert a stabilising effect on the foreign exchange market.     

人民币汇率升值:历史回顾、动力机制与前景展望

本文回顾了人民币汇率升值的历史进程,剖析了人民币汇率升值的动力机制,并对人民币汇率升值的前景进行了展望。无论从1994年汇率并轨还是从2005年央行重启汇率改革至今,人民币对美元名义汇率以及人民币有效汇率均经历了显著的升值过程。从利率平价、购买力平价、贸易余额与劳动生产率增速等短、中、长期维度来看,人民币对美元汇率依然存在一定的升值动力。下一阶段人民币对美元汇率走势取决于汇率政策制定过程中的博弈。考虑到贸易顺差、短期国际资本流动、输入性通胀与外部压力等因素的消长,下一阶段人民币对美元汇率的升值幅度有望显著放缓(由之前的年均5%～7%放缓至年均2%～3%),并伴随着人民币对美元汇率波动幅度的明显放大。     

Verifying India’S Exchange Rate Regime in the Pre-Reforms Period (1975–91)

Verifiability of an announced exchange rate regime becomes important in the context of credibility and transparency of a regime. These latter ideas become especially significant in the context of the currently reigning hypothesis of the missing middle, which postulates that exchange rate regimes intermediate to the corner regimes of ‘free floating’ and ‘firm fixing’ are increasingly becoming nonviable in a world of greater international capital mobility as these intermediate regimes are more difficult to verify. This paper attempts to verify India’s exchange rate regime in the so-called basket arrangement period. Using auxiliary information about the regime, it estimates the confidential Indian basket and shows that the behaviour of India’s exchange rate was not exactly as per the announced regime.

     

Investment horizon effect on asset allocation between value and growth strategies

How does the optimal risk exposure of assets change as their investment horizons increase? Does this impact investment portfolio decision-making, in particular, optimal asset allocation between value and growth strategies over various investment horizons? This paper adopts a new approach to address these questions by examining portfolio allocation between value and growth stocks over various investment horizons. This new approach is based on wavelet analysis, which decomposes the returns of a particular investment strategy across multiple investment horizons. The key empirical results show that the success of pursuing the value strategy (short-selling growth stocks and going long on value stocks) is impacted by the approach used to classify value and growth stock returns. We explore two common alternatives: Fama-French versus Standard & Poor's (S&P) 500/Barra portfolios. The results using Fama-French portfolios show that as the investment horizon increases, the optimal mean allocation of investors tilts heavily away from growth stocks, particularly for lower and moderate levels of risk aversion. Interestingly, for S&P 500/Barra portfolios the allocation weights between value and growth do not vary much.