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Exchange Rate Volatility (exchange + rate_volatility)
Selected AbstractsTHE CONSEQUENCES OF EXCHANGE RATE VOLATILITYECONOMIC PAPERS: A JOURNAL OF APPLIED ECONOMICS AND POLICY, Issue S1 2001MARK CROSBY First page of article [source] Exchange Rate Volatility and Democratization in Emerging Market CountriesINTERNATIONAL STUDIES QUARTERLY, Issue 2 2003Jude C. Hays We examine some of the consequences of financial globalization for democratization in emerging market economies by focusing on the currency markets of four Asian countries at different stages of democratic development. Using political data of various kinds,including a new events data series,and the Markov regime switching model from empirical macroeconomics, we show that in young and incipient democracies politics continuously causes changes in the probability of experiencing two different currency market equilibria: a high volatility "contagion" regime and a low volatility "fundamentals" regime. The kind of political events that affect currency market equilibration varies cross-nationally depending on the degree to which the polity of a country is democratic and its policymaking transparent. The results help us better gauge how and the extent to which democratization is compatible with financial globalization. [source] Inflation Targeting, Exchange Rate Volatility and International Policy CoordinationTHE MANCHESTER SCHOOL, Issue 4 2002Fernando Alexandre In a linear rational expectations two,country model, using an aggregate demand, aggregate supply framework, we analyse the effects of the adoption of an inflation,targeting regime on exchange rate volatility and the possible scope for policy coordination. This analysis is conducted using optimized interest rate policy rules within a calibrated model. Rules for interest rates that respond either to exchange rates or to portfolio shocks give improved performance and permit gains from international coordination. Optimized Taylor rules perform relatively well. [source] The Impact of Exchange Rate Volatility on US Direct InvestmentTHE MANCHESTER SCHOOL, Issue 3 2002Holger Görg In this paper we examine the impact of the level of the exchange rate, volatility in the exchange rate and exchange rate expectations on outward US foreign direct investment in 12 developed countries and inward foreign direct investment to the USA from those countries for the period from 1983 to 1995. In our empirical analysis we find no evidence for an effect of exchange rate variation on either US outward investment or inward investment in the USA. This result is robust to a number of different estimation procedures. As regards the level of the exchange rate we find a positive relationship between US outward investment and appreciation in the host country currency while there is a negative relationship between US inward investment and appreciation in the dollar. [source] Why Do Banks Go Abroad?,Evidence from German DataFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 1 2000Claudia M. Buch This paper provides empirical evidence on the determinants of foreign activities of German banks. We use regionally disaggregated panel data for the years 1981,98 and distinguish foreign direct investment from total foreign assets of domestic banks, of their foreign branches and of their subsidiaries. Foreign activities are found to be positively related to demand conditions on the local market, foreign activities of German firms, and the presence of financial centers. This supports the hypothesis that German banks follow their customers abroad. Exchange rate volatility has some negative impact. EU membership and the abolition of capital controls seem to have exerted a greater influence on foreign assets than on FDI of German banks, thus weakly supporting the hypothesis that the two are substitutes. [source] One money, one market: the effect of common currencies on tradeECONOMIC POLICY, Issue 30 2000Andrew K. Rose A gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade. The panel data, bilateral observations for five years during 1970,90 covering 186 countries, includes 300+ observations in which both countries use the same currency. I find a large positive effect of a currency union on international trade, and a small negative effect of exchange rate volatility, even after controlling for a host of features, including the endogenous nature of the exchange rate regime. These effects, statistically significant, imply that two countries sharing the same currency trade three times as much as they would with different currencies. Currency unions like the European EMU may thus lead to a large increase in international trade, with all that that entails. [source] Liberalized capital markets, state autonomy, and European monetary unionEUROPEAN JOURNAL OF POLITICAL RESEARCH, Issue 2 2003Erik Jones The conventional wisdom is that capital market integration and now monetary union have limited the options available to macroeconomic policy makers in Europe. The question considered here, therefore, is why many prominent Europeans insist that monetary union is a rational response to capital market integration. Monetary union eliminates exchange rate volatility , but only at a cost in terms of tightening the constraints on macroeconomic policy. Using a combination of macroeconomic theory and (descriptive) statistical analysis of European performance, I find that: capital market integration has increased macroeconomic flexibility through a mitigation of the current account constraint; European states have combined macroeconomic policies in a manner that has taken advantage of greater flexibility on the current account; the cost of such flexibility in terms of the impact of financial volatility on the real economy manifests differently in different countries; and monetary union both enhances flexibility on the current account and mitigates financial volatility. [source] The effect of a transaction tax on exchange rate volatilityINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2010Markku Lanne Abstract We argue that a transaction tax is likely to amplify, not dampen, volatility in foreign exchange markets. Our argument stems from the decentralized trading practice and the presumable discrepancy between ,informed' and ,uninformed' traders' valuations. Given that the informed valuations are likely to be less dispersed, a transaction tax penalizes informed trades disproportionately, leading to increased volatility. Empirical support for this prediction is found by investigating the effect of transaction costs on the volatility of DEM/USD and JPY/USD returns. High-frequency data are used and an increase in transaction costs is found to have a significant positive effect on volatility. Copyright © 2009 John Wiley & Sons, Ltd. [source] Foreign direct investment and exchange rate uncertainty in South-East AsiaINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2008Sylvia Gottschalk Abstract We investigate the relationship between exchange rate volatility, exchange rate risk diversification and the location of foreign direct investment in the manufacturing industries of Indonesia, Malaysia, Philippines and Thailand. We found a strong role for the yen/dollar exchange rate in location decisions of the US and Japanese investors. There is evidence in the literature that Japanese firms invest in Asia to circumvent the appreciation of the yen. Our results show that the volatility of the yen and the correlation between local exchange rates and the yen are significant determinants of the US and Japanese investments in the region. Copyright © 2007 John Wiley & Sons, Ltd. [source] Chartism and exchange rate volatility,INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2007Mikael Bask Abstract The purpose of this paper is to implement theoretically, the observation that the relative importance of fundamental versus technical analysis in the foreign exchange market depends on the time horizon in currency trade. For shorter time horizons, more weight is placed on technical analysis, while more weight is placed on fundamental analysis for longer horizons. The theoretical framework is the Dornbusch overshooting model, where moving averages is the technical trading technique used by the chartists. The perfect foresight path near long-run equilibrium is derived, and it is shown that the magnitude of exchange rate overshooting is larger than in the Dornbusch model. Specifically, the extent of overshooting depends inversely on the time horizon in currency trade. How changes in the model's structural parameters endogenously affect this time horizon and the magnitude of overshooting along the perfect foresight path are also derived. Copyright © 2007 John Wiley & Sons, Ltd. [source] Central bank interventions in industrialized countries: a characterization based on survey resultsINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2006Christelle Lecourt Abstract This paper presents the findings from a survey on central banks' FOREX intervention practices in industrialized countries over the last decade. The answers of responding monetary authorities are examined with respect to available data and literature. Our findings indicate that interventions usually take place during normal working hours while central banks show some preference for dealing with major domestic banks. Correction or prevention of long-term misalignments of exchange rates with their fundamental values and, to a lesser extent, the reduction of exchange rate volatility is the first motive given for intervention. The signalling effect of interventions is consistently put forward as the main channel through which interventions work. Copyright © 2006 John Wiley & Sons, Ltd. [source] Dimensions of financial integration in Greater China: money markets, banks and policy effectsINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2005Yin-Wong Cheung Abstract The financial linkages between the People's Republic of China (hereafter ,China') and the other Greater China economies of Hong Kong and Taiwan are assessed, and compared against those of China with Singapore, Japan and the United States. For both sets of links, there is evidence that ex post uncovered interest parity tends to hold over longer periods, and the magnitude of the parity deviations is shrinking over time. The deviations depend upon the extent of capital controls, and in certain cases, exchange rate volatility. However, while the money markets of China are increasingly linked to money markets in the rest of the world, our empirical results suggest that the banking sector,the main source of capital for Chinese firms,remains insulated. Copyright © 2005 John Wiley & Sons, Ltd. [source] Black and official exchange rate volatility and foreign exchange controls: evidence from GreeceINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2001Angelos Kanas F31; F32; C22; C52 Abstract This paper examines the issue of volatility and capital controls to the official and black market exchange rates of the Greek Drachma using the monthly exchange rate against the US dollar for the period 1975,1993. Specifically, we apply a GARCH(1,,1) model to study the behaviour of the official and black market drachma/dollar exhange rate. The main findings of the analysis are: (i) in contrast to the findings of previous studies using monthly rates, GARCH processes characterize the drachma/dollar exchange rate series in both markets; (ii) the relaxation of foreign exchange controls increased the volatility of the exchange rate in the official market as implied by theory; (iii) the persistence of volatility is reduced when account is taken of the liberalization process of capital movements; and (iv) The forecasts of volatility are improved when the GARCH forecasts are used against traditional measures. Copyright © 2001 John Wiley & Sons, Ltd. [source] Forecasting realized volatility: a Bayesian model-averaging approachJOURNAL OF APPLIED ECONOMETRICS, Issue 5 2009Chun Liu How to measure and model volatility is an important issue in finance. Recent research uses high-frequency intraday data to construct ex post measures of daily volatility. This paper uses a Bayesian model-averaging approach to forecast realized volatility. Candidate models include autoregressive and heterogeneous autoregressive specifications based on the logarithm of realized volatility, realized power variation, realized bipower variation, a jump and an asymmetric term. Applied to equity and exchange rate volatility over several forecast horizons, Bayesian model averaging provides very competitive density forecasts and modest improvements in point forecasts compared to benchmark models. We discuss the reasons for this, including the importance of using realized power variation as a predictor. Bayesian model averaging provides further improvements to density forecasts when we move away from linear models and average over specifications that allow for GARCH effects in the innovations to log-volatility. Copyright © 2009 John Wiley & Sons, Ltd. [source] Nonlinear effects of exchange rate volatility on the volume of bilateral exportsJOURNAL OF APPLIED ECONOMETRICS, Issue 1 2004Christopher F. Baum In this paper, we investigate empirically the impact of exchange rate volatility on real international trade flows utilizing a 13-country data set of monthly bilateral real exports for 1980,1998. We compute one-month-ahead exchange rate volatility from the intra-monthly variations in the exchange rate to better quantify this latent variable. We find that the effect of exchange rate volatility on trade flows is nonlinear, depending on its interaction with the importing country's volatility of economic activity, and that it varies considerably over the set of country pairs considered. Copyright © 2003 John Wiley & Sons, Ltd. [source] The impact of exchange rate volatility on U.S. poultry exportsAGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 2 2006Titus O. Awokuse Existing empirical evidence on the effect of exchange rate uncertainty on trade is generally conflicting and inconclusive. While some studies found a positive relationship between exchange rate volatility and trade, others argue for the opposite. Furthermore, the vast majority of past studies only focused on aggregate trade flow data. The lack of extensive literature on studies based on disaggregated and commodity-level data may partially explain the ambiguity in past empirical evidence. This paper re-examines the relationship between exchange rate volatility and U.S. poultry exports using a panel data for 49 importing nations over two subperiods: 1976,1985 and 1986,2000. The analysis uses a fixed-effects model specification and three alternative measures of exchange rate volatility. The empirical results suggest that the choice of volatility measure matters as there is a positive relationship between exchange rate uncertainty and poultry exports. These findings are consistent with those from several previous studies. [JEL classification: F310, Q170]. © 2006 Wiley Periodicals, Inc. Agribusiness 22: 233,245, 2006. [source] Monetary Policy under Alternative Asset Market Structures: The Case of a Small Open EconomyJOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2009BIANCA DE PAOLI welfare; optimal monetary policy; asset markets; small open economy Can the structure of asset markets change the way monetary policy should be conducted? Following a linear-quadratic approach, the present paper addresses this question in a New Keynesian small open economy framework. Our results reveal that the configuration of asset markets significantly affects optimal monetary policy and the performance of standard policy rules. In particular, when comparing complete and incomplete markets, the ranking of policy rules is entirely reversed, and so are the policy prescriptions regarding the optimal level of exchange rate volatility. [source] What Macroeconomic Measures Are Needed for Free Trade to Flourish in the Western Hemisphere?LATIN AMERICAN POLITICS AND SOCIETY, Issue 2 2004Barry Eichengreen ABSTRACT Recent experience has made clear the importance of macroeconomic stability, and exchange rate stability in particular, in generating support for regional integration. The tensions created by exchange-rate and financial volatility are clearly evident in the recent history of Mercosur and may also hinder the development of a Free Trade Area of the Americas. This essay argues that ambitious schemes for a single regional currency are not a practical response to this problem. Nor would a system of currency pegs or bands be sufficiently durable to provide a lasting solution. Instead, countries must solve this problem at home. In practice, this means adopting sound and stable monetary policies backed by a clear and coherent operating strategy, such as inflation targeting. With such policies in place, exchange rate volatility can be reduced to levels compatible with regional integration. [source] Range-Based Estimation of Stochastic Volatility ModelsTHE JOURNAL OF FINANCE, Issue 3 2002Sassan Alizadeh We propose using the price range in the estimation of stochastic volatility models. We show theoretically, numerically, and empirically that range-based volatility proxies are not only highly efficient, but also approximately Gaussian and robust to microstructure noise. Hence range-based Gaussian quasi-maximum likelihood estimation produces highly efficient estimates of stochastic volatility models and extractions of latent volatility. We use our method to examine the dynamics of daily exchange rate volatility and find the evidence points strongly toward two-factor models with one highly persistent factor and one quickly mean-reverting factor. [source] The interrelation of price volatility and trading volume of currency optionsTHE JOURNAL OF FUTURES MARKETS, Issue 7 2003Ghulam Sarwar This article examines the interrelations between future volatility of the U.S. dollar/British pound exchange rate and trading volume of currency options for the British pound. The future volatility of the exchange rate is approximated alternatively by implied volatility and by IGARCH volatility. The results suggest the presence of strong contemporaneous positive feedbacks between the exchange rate volatility and the trading volume of call and put options. Previous option volumes have significant predictive power with respect to the expected future volatility of the dollar/pound exchange rate. Similarly, lagged volatilities jointly have significant predictive power for option volume. Although option volume (volatility) responds somewhat differently to individual volatility (volume) terms under the two volatility measures, the overall volume-volatility relations are broadly similar between the implied and IGARCH volatilities. The results generally support the hypothesis that the information-based trading explains more of the trading volume in currency options on the U.S. dollar/British pound exchange rate than hedging. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:681,700, 2003 [source] Inflation Targeting, Exchange Rate Volatility and International Policy CoordinationTHE MANCHESTER SCHOOL, Issue 4 2002Fernando Alexandre In a linear rational expectations two,country model, using an aggregate demand, aggregate supply framework, we analyse the effects of the adoption of an inflation,targeting regime on exchange rate volatility and the possible scope for policy coordination. This analysis is conducted using optimized interest rate policy rules within a calibrated model. Rules for interest rates that respond either to exchange rates or to portfolio shocks give improved performance and permit gains from international coordination. Optimized Taylor rules perform relatively well. [source] Testing for causality-in-variance: an application to the East Asian marketsINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2002Guglielmo Maria Caporale Abstract In this paper we provide some empirical evidence on the casual relationship between stock prices and exchange rates volatility in four East Asian countries. In order to test for causality-in-variance, we use a GARCH model for which a BEKK representation is adopted, and then test for the relevant zero restrictions on the conditional variance parameters. We find that in the pre-crisis sample stock prices lead exchange rates negatively in Japan and South Korea (consistently with the portfolio approach) and positively in Indonesia and Thailand. In the latter two countries after the onset of the 1997 East Asian crisis the spillover effects are found to be bidirectional. Copyright © 2002 John Wiley & Sons, Ltd. [source] | |||||||||||||||||||||||||