The timing of exchange rate collapse

Recent episodes of exchange rate collapse have renewed interest in models of speculative attacks. These episodes have been considered by some observers to be inconsistent with “fundamentals” models of attack since there was no prolonged period of policy misalignment and declining reserves, as required by such models. This paper develops a fundamentals model in which collapse is instantaneous at the time of unexpected policy change and/or a change in the expectations of future policy, even for a reserve abundant country.     

Monetary disequilibria and the euro/dollar exchange rate

Although stable money demand functions are crucial for the monetary model of the exchange rate, empirical research on exchange rates and money demand is more or less disconnected. This paper tries to fill the gap for the euro/dollar exchange rate. We investigate whether monetary disequilibria provided by the empirical literature on US and European money demand functions contain useful information about exchange rate movements. Our results suggest that the empirical performance of the monetary exchange rate model improves when insights from the money demand literature are explicitly taken into account.     

European monetary arrangements: Implications for the dollar,exchange rate variability and credibility

This paper uses the recent history of the ERM to gain insights into what might happen to exchange rates on the road to EMU. to do this, the paper examines the variability of exchange rates, the transmission of monetary policy between countries, the role of the dollar in ERM exchange rate crises, and ERM members' credibility as measured by the realignment probabilities prior to the September 1992 crisis. We identify two factors that might have contributed to the September 1992 crisis: high German interest rates and weakness of the US dollar. We find that behaviour of exchange rates has changed over time and differs between ERM and non-ERM currencies. We also demonstrate that changes in German short-term interest rates influence interest rates in other ERM countries and vice versa.     

Gauging exchange rate targeting

In this paper, we examine whether a monetary authority targets the exchange rate, per se, or instead simply appears to do so as it responds to the exchange rate and other variables in service to inflation and output targets. We combine data-rich estimation with a system of forward-looking equations in order to disentangle the possibilities. The combined approach reveals the potentially misleading nature of standard estimates of the extent of exchange rate and inflation targeting. We illustrate the approach by applying it to two de jure inflation targetters, Canada and Korea. In contrast to standard methods and much past work, we find that neither country targets its exchange rate; and, both are bona fide inflation targetters.     

Do exchange rate changes have symmetric or asymmetric effects on stock prices?

Several macro variables have been identified as determinants of stock prices and exchange rate is among them. Exchange rate changes can affect different firms differently depending on whether they are export oriented or they use heavily imported inputs. Therefore, the overall effects of exchange rate changes on an aggregate stock price index could be in either direction. Previous research assumed that exchange rate changes have symmetric effects on stock prices. In this paper after introducing nonlinearity into adjustment process and after using Nonlinear ARDL approach to cointegration and error-correction modeling combined with monthly data from Brazil, Canada, Chile, Indonesia, Japan, Korea, Malaysia, Mexico, and the U.K., we show that exchange rate changes have asymmetric effects on stock prices, though the effects are mostly short-run.     

人民币汇率波动背景下的“钟摆效应”探析

2012年以来,人民币对美元汇率继续呈现双向波动趋势,升值和贬值预期交替出现。企业等市场主体根据人民币汇率预期变动,灵活调整外币资产负债配置结构,使财务运作呈现较为明显的“钟摆效应”。“钟摆效应”的出现,反映了国内市场主体对汇率风险意识的增强,也影响到外汇资产在央行和市场主体间配置的变动,增加跨境资金流动的波动性。为更好地适应国内市场主体外币资产配置需求的变化,文章提出相关政策建议。     

Expenditure switching versus real exchange rate stabilization: Competing objectives for exchange rate policy

This paper develops a view of exchange rate policy as a trade-off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations, and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment. We show that optimal nominal exchange rate volatility will reflect these competing objectives. The key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness, the elasticity of substitution between home and foreign goods, and the amount of home bias in production. Quantitatively, we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations. Moreover, we find that the relationship between price stickiness and optimal exchange rate volatility may be non-monotonic.     

Bundesbank intervention effects through interest rate policy

This paper investigates the effects of the changes in the Bundesbank's discount and Lombard interest rates on the volatility of European Union country exchange rates relative to the German mark during 1987–93. The first year of the sample period contains the last major realignment in the ERM before its ‘breakdown’ in 1993. Using a parsimonious EGARCH model, we find that the conditional volatility of these exchange rates increased in response to interest rate changes, regardless of the rate change direction. This finding is in direct conflict with Bundesbank's public statements that indicate that its interest rate policy was designed to calm its foreign exchange markets.     

Tracking exchange rate management in Latin America

One way to track exchange-rate deviations from its long-run value is to examine numerical patterns in exchange rates to see if those patterns appear to have been subjected to some degree of policy management. We apply Benford's Law to exchange rates in Latin American countries, computing and comparing the distribution of exchange-rate observed values with those of Benford's Law. For most cases we find that the exchange rate for the US dollar does not satisify Benford's Law, however this law holds when the euro is considered. This result may be explained by the fact that these countries are characterized for having different degrees of dollarization and intervention in the US dollar forex market while there is almost no policy intervention in the euro forex market. Our approach is an alternative view of how these characteristics play a role inducing deviations with respect to an implied equilibrium exchange rate.     

The impact of uncertainty on professional exchange rate forecasts

This paper analyzes the role of uncertainty on both exchange rate expectations and forecast errors of professionals for four major currencies based on survey data provided by FX4casts. We consider economic policy, macroeconomic, and financial uncertainty as well as disagreement among CPI inflation forecasters to account for different dimensions of uncertainty. Based on a Bayesian VAR approach, we observe that uncertainty effects on forecast errors of professionals turn out to be more significant compared to the adjustment of exchange rate expectations. Our findings are robust to different forecasting horizons and point to an unpredictable link between exchange rates and fundamentals. Furthermore, we illustrate the importance of considering common unpredictable components for a large number of variables. We also focus on the post-crisis period and the relationship between uncertainty and disagreement among exchange rate forecasters and identify a strong relationship between them.     

Optimal exchange rate flexibility with large labor unions

We study the optimal volatility of the exchange rate in a two-country model with sectoral non-atomistic wage setters, non-traded goods, nominal rigidities and alternative pricing assumptions – producer or local currency pricing. Labor unions internalize the sectoral impact of their wage settlements through firms' labor demand. With local currency pricing, exchange rate depreciation raises sales revenue, which in turn boosts domestic consumption and labor demand. Unions anticipate this effect and set higher wages accordingly. With small unions and low wage markup, optimal monetary policy enhances exchange rate movements to improve its terms of trade. With large unions and high wage markup, optimal monetary policy curbs exchange rate movements to restrain inflationary wage demands and to stabilize employment.     

总供求视角下的人民币均衡汇率

文章在宏观经济学总供给一总需求框架的基础上,建立了人民币均衡汇率的需求缺口模型,指出“均衡汇率”应该是一个区间,合意的汇率水平是内部平衡和外部平衡权衡的结果。中国应将国内平衡作为优先目标,根据国内平衡的需要适时调整汇率政策。中长期内,随着中国内外需求格局的转变,人民币汇率双向弹性增强并保持适度升值可能是合理和有益的。     

Modelling long-run equilibrium exchange rate in Botswana

The paper estimates the equilibrium real exchange rate for Botswana. It also reviews the country’s exchange rate regimes. Botswana operated a fixed exchange – without adjustable pegs from 1966 to 1976; with adjustable pegs from 1976 to 1980; and with a currency basket from 1980 to date. Using the autoregressive distributed lag bounds testing procedure, the paper found terms of trade and trade openness to determine the equilibrium real exchange rate. The actual real exchange rate has deviated significantly from the equilibrium exchange rate. The estimated speed of adjustment is very slow, which calls for policies that could raise it in order to avoid excess misalignments.     

Do central banks respond to exchange rate movements? A structural investigation

We estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. Our main focus is the conduct of monetary policy in Australia, Canada, New Zealand and the UK. We consider generic Taylor-type rules, where the monetary authority reacts in response to output, inflation, and exchange-rate movements. We perform posterior odds tests to investigate the hypothesis whether central banks do target exchange rates. The main result of this paper is that the central banks of Australia and New Zealand do not, whereas the Bank of Canada and the Bank of England do include the nominal exchange rate in its policy rule. This result is robust for various specification of the policy rule. We also find that terms-of-trade movements do not contribute significantly to domestic business cycles.     

Impact of exchange rate regime reform on asset returns in China

Employing monthly data over the period 1999–2010, this paper examines the impact of China's exchange rate regime reform in July 2005 on three major asset markets: house, land, and stocks. We test whether the reform, which switches from a fixed exchange rate regime to a managed floating one, has brought forward structural changes to asset return dynamics. The results suggest that the exchange rate regime switch exerted the most significant impact on house and land returns at the national level, in terms of both returns and their volatilities. In contrast, its impact on China's stock market was moderate, with no structural change being detected in its returns and only weak structural change being found in the dynamics of its volatility. We also find that in comparison with other popular explanatory variables, broad money supply and inflation have the largest explanatory power on housing and land returns in China after the policy reform.     

关于当前人民币有效汇率合理水平的思考

2011年下半年欧债危机恶化以来,在人民币有效汇率大幅升值的同时,欧美日等国从中国的进口增速均出现了低于其整体进口增速的现象,这表明当前中国出口不景气并不完全归因于外需不足,人民币有效汇率大幅升值至历史高位也是出口增速下滑的重要影响因素。鉴于保持出口稳定是“稳增长”的重要内容之一,文章建议应进一步增强汇率弹性,实现人民币有效汇率的基本稳定,充分发挥汇率政策工具在调节宏观经济内外均衡方面的重要作用。     

国际货币基金组织的汇率监督、评估分析及启示

汇率监督是国际货币基金组织维护国际货币体系稳定的重要方式之一;随着全球经济、金融形势的发展,IMF汇率监督的改革和评估方法也呈现了一些新的动态。该文通过对IMF汇率监督改革、评估方法和分析展望的详细分析,得出以下结论：（1）IMF的汇率研究以中期汇率水平失调的理论分析为主,目前对各国汇率政策实践的指导作用相对有限;（2）内外经济政策的失误均有可能导致汇率失调,汇率政策不应承担国际收支不平衡的全部责任;（3）汇率水平是否合理的争议将长期存在,不能过分追求和强调汇率的水平,并不存在“普适”和“万能”的汇率模式,而汇率调整的过程和机制建设是关键。     

Macroeconomic fundamentals and the exchange rate dynamics: A no-arbitrage macro-finance approach

In this paper, we propose an arbitrage-free international macro-finance model that links the exchange rate dynamics to macroeconomic fundamentals. Jointly using data on exchange rates, yields of zero-coupon bonds, and macroeconomic variables of the US and the Euro area, we find a close link between macroeconomic fundamentals and the exchange rate dynamics. The model-implied monthly exchange rate changes can explain about 57% variation of the observed data. The macroeconomic innovations can help capture large variation of exchange rate changes. Robustness checks show that the results also hold for other major exchange rates.     

Exchange rate risk exposure and the value of European firms

This paper presents a new assessment of the exposure of European firms to exchange rate fluctuations which takes into account the potential common drivers of exchange rates and equity market conditions. Using monthly data for European firms from 1999 to 2011, we assess the impact of unexpected fluctuations in the USD, JPY, GBP and CHF against the Euro, and show that the proportion of firms subject to exchange rate risk is considerably larger when estimation accounts for potential common drivers and firm-specific factors than otherwise. Firm exposure to exchange rate risk is affected by the level of international involvement, industry, firm size and country of origin. European firms with largely domestic operations reveal the greatest vulnerability to unexpected exchange rate movements, suggesting an opportunity to improve risk management for these companies.