A Model Forecasting Risk for Emerging Market Currencies

In this paper, we propose a risk forecasting model for emerging market currencies. Our model is based on the Markov regime switch which is constructed by exploiting daily equity market information, and we show that our model outperforms the existing model using macroeconomic information. We evaluate it by the performance measures, the goodness-of-fit and the Wilcoxon rank-sum test.     

Exchange rate pass-through in emerging countries: Do the inflation environment,monetary policy regime and central bank behavior matter?

In this paper, we estimate the exchange rate pass-through (ERPT) to import and consumer prices for a sample of 14 emerging countries over the 1994Q1-2015Q3 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for monetary stability proxied by the inflation environment, monetary policy regime and central bank behavior. We show that both the level and volatility of inflation, as well as adopting an inflation target or the transparency of monetary policy decisions clearly reduce ERPT to consumer prices. However, uncertainty about domestic monetary policy seems less relevant in explaining the pass-through to the price of imports.     

After the tide: Commodity currencies and global trade

The decade prior to the Great Recession saw a boom in global trade and rising transportation costs. High-yielding commodity exporters׳ currencies appreciated, boosting carry trade profits. The Global Recession sharply reversed these trends. We interpret these facts with a two-country general equilibrium model that features specialization in production and endogenous fluctuations in trade costs. Slow adjustment in the shipping sector generates boom–bust cycles in freight rates and, as a consequence, in currency risk premia. We validate these predictions using global shipping data. Our calibrated model explains about 57% of the narrowing of interest rate differentials post-crisis.     

Exchange rate pass-through and relative prices: An industry-level empirical investigation

In this paper we explore the extent of exchange rate pass-through for the USA, UK and Japan using a post-Bretton Woods industry-level dataset. We investigate how different channels of exchange rate pass-through affect domestic and import prices. Our analysis is suggestive of two channels of transmission and we find considerable variation in the extent of pass-through across industries and countries.     

The behavior of money and other economic variables: Two natural experiments

The object of this paper is to test the performance of the quantity-theory model and the related proposition of monetary neutrality in a context in which, to use Bernanke's phraseology, “money move[d] for reasons that [were] plausibly unrelated to the current state of the economy.” We investigate this question using data from two recent episodes of monetary-policy regime change – the move to floating exchange rates throughout the industrialized world following the breakdown of Bretton Woods in the early 1970s and the shift toward less expansive monetary policy that to varying degrees took place in these countries a decade or so later. The results of this exercise are highly positive. The money–price relationship that we observe is fully consistent with theory – growth shifts in the nominal stock of money and in the price level are highly correlated and bear a one-to-one relation to one another. Growth shifts in exchange rates are significantly related both to growth shifts in relative price levels and to growth shifts in relative excess supplies of money. The classical neutrality proposition – in this context superneutrality – in general, receives strong, though not totally unambiguous, support.     

Macroeconomic interdependence and the international role of the dollar

The U.S. dollar holds a dominant place in the invoicing of international trade. In addition to a direct role for most U.S. exports and imports, it plays a global role for trade flows outside the United States. Using a simple center-periphery model, we show that this global role magnifies the exposure of periphery countries to the U.S.'s monetary policy even when trade flows with the U.S. are limited. This generates gains from coordinated monetary policy, as U.S. policy leads to inefficient movements in intra-periphery relative prices. Despite this inefficiency, flexible exchange rates remain valuable.     

Determinants of Currency Crises in Emerging Markets: The Case of Turkey

This paper investigates possible determinants of currency crises in Turkey. We use three different techniques—namely, the signaling approach, structural model, and Markov switching model with monthly data for the period 1992-2004. The results show that money market pressure index, real-sector confidence index, and public-sector variables are significant in explaining currency crises. Hence, one can say that banking crises lead to currency crises. Central banks' real-sector confidence index may be a good leading indicator for currency crises.     

Remittances and Currency Crisis: The Case of Developing and Emerging Countries

Employing the first-generation currency crisis model of Flood and Garber (1984), I explore the financial effects of migrants' remittances on the economies of developing and emerging countries in a currency crisis. The model implies that remittances can contribute to a reduction in the likelihood of a currency crisis and appreciation in foreign exchange rates via the promotion of foreign exchange reserves. Panel estimation with twelve developing and emerging countries that previously experienced financial crises confirms the implications, suggesting that migrants' remittances can play a significant role in mitigating financial constraints and thus contribute to financial stability.     

Exchange-rate volatility and industry trade between the U.S. and Malaysia

Previous research that investigated the impact of exchange rate volatility on the trade flows of Malaysia concentrated only on the aggregate exports of Malaysia to the rest of the world. In this paper we first concentrate on the trade flows between Malaysia and the U.S. After showing that exchange rate volatility has neither short-run nor long-run effect on the trade flows between the two countries, we disaggregate the trade data by industry and consider the experience of 101 U.S. exporting industries to Malaysia and 17 U.S. importing industries from Malaysia. While exchange rate volatility seems to have significant short-run effects on the trade flows of most industries, short-run effects translate into the long run only in a limited number of small industries.     

The impact of exchange rates on stock market returns: new evidence from seven free-floating currencies

This paper provides evidence of a significant exchange rate effect on stock index returns using data from seven selected countries practicing free-floating exchange rate regimes. This research uses parity and asset pricing theories, thus placing it within the monetary-cum-economics framework for international asset pricing. In this study, we apply a system of seemingly unrelated regression to control for unobserved heterogeneity and cross-sectional dependence. The findings constitute evidence of a statistically significant exchange rate impact on stock index returns across selected countries. These findings can be considered as falling under the arbitrage pricing approach of the international capital asset pricing model of Solnik who also used the parity-theoretical framework on exchange rate determination.     

Commodity money inflation: theory and evidence from France in 1350–1436

This paper presents a theory of inflation in commodity money and supports it by evidence from inflationary episodes in France during the 14th and 15th centuries. The paper shows that commodity money can be inflated similarly to fiat money through repeated debasements, which act like devaluations. Furthermore, as with fiat money, demand for commodity money falls with inflation. However, at high rates of inflation demand for commodity money becomes insensitive to inflation, since commodity money has intrinsic value in addition to its transactions value. Finally, we show that anticipated stabilization reduces demand for commodity money.     

美元加息对新兴市场国家的影响与对策

2018年4月以来,美元持续多次加息,多个新兴市场国家本币大幅贬值、股市急剧下跌、债市承压动荡,资本外流压力进一步显现。新兴市场国家金融动荡的导火索以外部因素为主,风险传播渠道以跨境联动因素为主,风险放大渠道以内部因素为主。在美元加息背景下,新兴市场国家要妥善处理自身货币与美元之间的关系,避免过于依赖美元,过多承担短期美元债务。支持法国、德国等提出的建立新独立国际支付体系的倡议,避免部分国家将国际公共的金融基础设施作为制裁手段。     

中国与其他新兴市场国家银行业的汇率风险比较——基于银行资产负债表构成的视角

本文分析了中国上市银行汇兑损益的影响因素,在比较中国与其他新兴市场国家银行业汇率风险后发现,二者在形成机理和方向上存在显著差异,这种差异首先源于银行资产负债表构成的不同,而储蓄率和对短期流入资本的监管等制度性因素则是造成中国与其他新兴市场国家银行业汇率风险截然不同的深层次原因。本文认为,应继续坚持银行业的对外开放,增强中国银行业的国际竞争力;适时打破人民币升值的单边预期,降低银行汇率风险,加快人民币国际化进程;考虑采取临时性资本管制措施,积极推动外汇衍生品市场的建立;适当降低中国的高储蓄率,改变传统的高投资、粗放型经济增长模式。     

资本市场收益与通货膨胀:对新兴市场的进一步检验

本文对中国、印尼、马来西亚、菲律宾、韩国和泰国六个新兴市场国家的股票回报率和通货膨胀率之间的关系进行了实证研究。结果表明,在中国和菲律宾,名义股票回报率和通胀率之间存在正相关关系,但在其它四个国家,并未发现同样的关系存在。这表明股票作为通货膨胀的对冲工具,可能仅在个别国家里成立。此外,本文还对真实回报率和通胀率之间的关系进行了检验,结果普遍表明当期通胀率和单期滞后通胀率对真实股票回报率有负的影响。     

Real Sector Shocks and Monetary Policy Responses in a Financially Vulnerable Emerging Economy

When analyzing the appropriate response for monetary policy during a currency crisis, it is important to keep in mind two distinct channels: the effect of raising interest rates on exchange rates and the direct effect of exchange rate changes on output. The first pertains to the monetary side of the economy as given by the interest parity condition. The second pertains to the real side of the economy. The interaction between these two parts of the economy derives the equilibrium output and exchange rate in the economy. This paper expands on the Aghion et al. (2000) monetary model with nominal rigidities and foreign currency debt, to examine the interaction between the real and monetary sides of the economy and to analyze the effect of monetary policy on the real economy. We find that the effect of monetary policy on exchange rate and output is theoretically ambiguous. This in turn suggests that the appropriate monetary policy response could vary among countries at any point in time, or for a particular country between two different periods.     

Cointegration test of oil price and us dollar exchange rates for some oil dependent economies

This study examines the long-run dynamics between oil price and the bilateral US dollar exchange rates for a group of oil-dependent economies before and after the 2008–2009 Global Financial Crises. Exchange rates are for the euro, Indian rupee, Russian ruble, South African rand, Ghanaian cedi and the Nigerian naira. The dependence on crude oil of these economies is either because fiscal revenues are primarily reliant on oil export receipts or because industrial production is heavily dependent on petroleum. Empirical results show evidence of a long run equilibrium relationship between oil price and exchange rate, especially for currencies of the key oil-exporting countries. This relationship is more evident in the post crisis period, which is also the period when both exchange rate volatility and the inverse relationship between oil price and exchange rate experienced a significant increase.     

Determinants and consequences of voluntary disclosure in an emerging market: Evidence from China

In this paper we examine empirically the determinants of voluntary disclosure in the annual reports of Chinese listed firms that issue both domestic and foreign shares and determine if the cost of debt capital is related to the extent of voluntary disclosure. We find the level of voluntary disclosure is positively related to the proportion of state ownership, foreign ownership, firm performance measured by return on equity, and reputation of the engaged auditor. There is no evidence, however, that companies benefit from extensive voluntary disclosure by having a lower cost of debt capital.     

Emerging markets and portfolio foreign exchange risk: An empirical investigation using a value-at-risk decomposition technique

The correlation between a portfolio's equity and foreign exchange components plays a role in reducing foreign exchange exposure. Investors must account for this correlation when determining the extent of foreign exchange risk in emerging market equity portfolio investments. This study employs a VaR risk factor mapping technique, under the variance–covariance VaR approach, to decompose portfolio risk in Argentina, Brazil, China, India, Mexico and Russia. For comparison purposes, the same technique is used to decompose portfolio risk in the US. The study is conducted from the perspective of a European equity investor with a portfolio of equities in each country. By employing the VaR decomposition technique, the correlation between a portfolio's equity and foreign exchange components is taken into account and portfolio foreign exchange risk is extracted from portfolio systematic risk. Our results uniquely demonstrate significant variation in foreign exchange risk in emerging markets.     

The euro and pound volatility dynamics: An investigation from conditional jump process

This paper investigates the variations of the volatility of euro and pound after the introduction of euro. A GARJI model is employed to analyze the impact of the news arrivals on the exchange rate volatility. The results are robust to the data-splitting schemes and indicate: (1) the conditional variance of euro is larger than that of pound. (2) The stability of euro exchange rates has made progress in recent years, which is accomplished by the decreases in the jump innovations. This paper supports the arguments on the determinants of exchange rate stability claimed by Mundell (1998) and Mussa (2000).     

The Asian Currency Unit (ACU): exploring alternative currency weights

While most observers concur that the time is not ripe for Asia to consider a common currency, there has been some discussion about the possible creation of an Asian Currency Unit (ACU). This paper examines the specific issue of the ACU which, in a general sense, is a weighted average of regional currencies á la the European Currency Unit (ECU) which was created in March 1979 under the European Monetary System (EMS). The paper critically examines the rationale for the ACU proposal and offers an initial attempt at computing optimal currency composition of the ACU. The optimal basket weights computed are aimed at ensuring a regional currency basket that has minimal variance. Hence it will deliver stability in intra-regional exchange rates for alternative configurations of currency baskets in the Asian and Pacific region.