Exchange Rate Determination Puzzle Long Run Behavior And Short Run Dynamics

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Exchange Rate Determination Puzzle

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Author : Falkmar Butgereit
language : en
Publisher: Diplomica Verlag
Release Date : 2010

Exchange Rate Determination Puzzle written by Falkmar Butgereit and has been published by Diplomica Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Business & Economics categories.

Still after more than thirty years of free floating exchange rates, large parts of exchange rate dynamics remain a puzzle. As this book shows, much progress has been made in explaining exchange rate movements over longer horizons. It also shows, however, that short-run movements are far more challenging to explain. The book is based upon a variety of papers, many of them released recently. A key aspiration of the literature has always been not only to explain past exchange rate behavior but also to forecast out of sample and to compare it to the simple random walk outcome. Here some development has been made after Meese and Rogoff's (1983) truculent verdict of the performance of common exchange rate models. By means of empirical analysis and descriptive statistics this book further supports the established long-run relationships between exchange rates and fundamentals such as expected productivity growth, real GDP growth, domestic investment, interest rates, inflation, government spending, and current account balances. It finds that these fundamentals affect the exchange rate to varying degrees over time. Turning to short-term exchange rate dynamics, it turns out that a different set of forces is at play. The key to explaining short-run movements is to be found in an extensive micro-foundation that factors in a pronounced heterogeneity among market participants and information asymmetries, as well as the possibility of sudden shifts in sentiment, beliefs, and the degree of risk aversion. Promising results have been obtained by order-flow analysis and high frequency data. Also, the consideration of chartism and speculators facilitates understanding for otherwise puzzling exchange rate movements. The last attempt to tackle the understanding of exchange rate behavior is the use of frequency domain analysis and in particular spectral analysis which tries to track down any cyclical patterns in the various moments of time series. And as we shall see forex indeed incorpor

Exchange Rates And Fundamentals

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Author : Stelios D. Bekiros
language : en
Publisher:
Release Date : 2011

Exchange Rates And Fundamentals written by Stelios D. Bekiros and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with Foreign exchange rates categories.

The present study builds upon the seminal work of Engel and West [2005, Journal of Political Economy 113, 485-517] and in particular on the relationship between exchange rates and fundamentals. The paper discusses the well-known puzzle that fundamental variables such as money supplies, interest rates, outputs etc. provide help in predicting changes in floating exchange rates. It also tests the theoretical result of Engel and West (2005) that in a rational expectations present-value model, the asset price manifests near-random walk behaviour if the fundamentals are I(1) and the factor for discounting future fundamentals is near one. The study explores the direction and nature of causal interdependencies and cross-correlations among the most widely traded currencies in the world, their country-specific fundamentals and their US-differentials. A new VAR/VECM-GARCH multivariate filtering approach is implemented, whilst linear and nonlinear non-causality is tested on the time series. In addition to pairwise causality testing, several different groupings of variables are explored. The methodology is extensively tested and validated on simulated and empirical data. The implication is that although exchange rates and fundamentals appear to be linked in a way that is broadly consistent with asset-pricing models, there is no indication of a prevailing causal behaviour from fundamentals to exchange rates or vice-versa. When nonlinear effects are accounted for, the evidence implies that the pattern of leads and lags changes over time. These results may influence the greater predictability of currency markets. Overall, fundamentals may be important determinants of FX rates, however there may be some other unobservable variables driving the currency rates that current asset-pricing models have not yet captured.

Imperfect Knowledge Economics

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Author : Roman Frydman
language : en
Publisher: Princeton University Press
Release Date : 2023-09-26

Imperfect Knowledge Economics written by Roman Frydman and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-09-26 with Business & Economics categories.

Posing a major challenge to economic orthodoxy, Imperfect Knowledge Economics asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem from their futile efforts to make exact predictions about the consequences of rational, self-interested behavior. Such predictions, based on mechanistic models of human behavior, disregard the importance of individual creativity and unforeseeable sociopolitical change. Scientific though these explanations may appear, they usually fail to predict how markets behave. And, the authors contend, recent behavioral models of the market are no less mechanistic than their conventional counterparts: they aim to generate exact predictions of "irrational" human behavior. Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades. Offering a fresh way to think about markets and representing a potential turning point in economics, Imperfect Knowledge Economics will be essential reading for economists, policymakers, and professional investors.

Handbook Of Exchange Rates

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Author : Jessica James
language : en
Publisher: John Wiley & Sons
Release Date : 2012-05-29

Handbook Of Exchange Rates written by Jessica James and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-05-29 with Business & Economics categories.

Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.

Short Run Exchange Rate Dynamics

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Author : John A. Carlson
language : en
Publisher:
Release Date : 2008

Short Run Exchange Rate Dynamics written by John A. Carlson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.

Recent research has revealed a wealth of information about the microeconomics of currency markets and thus the determination of exchange rates at short horizons. This information is valuable to us as scientists since, like evidence of macroeconomic regularities, it can provide critical guidance for designing exchange-rate models. This paper presents an optimizing model of short-run exchange-rate dynamics consistent with both the micro evidence and the macro evidence, the first such model of which we are aware. With respect to microeconomics, the model is consistent with the institutional structure of currency markets, it accurately reflects the constraints and objectives faced by the major participants, and it fits key stylized facts concerning returns and order flow. With respect to macroeconomics, the model is consistent with most of the major puzzles that have emerged under floating rates.

Forecasting And Hedging In The Foreign Exchange Markets

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Author : Christian Ullrich
language : en
Publisher: Springer Science & Business Media
Release Date : 2009-05-30

Forecasting And Hedging In The Foreign Exchange Markets written by Christian Ullrich and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-05-30 with Business & Economics categories.

Historical and recent developments at international ?nancial markets show that it is easy to loose money, while it is dif?cult to predict future developments and op- mize decision-making towards maximizing returns and minimizing risk. One of the reasons of our inability to make reliable predictions and to make optimal decisions is the growing complexity of the global economy. This is especially true for the f- eign exchange market (FX market) which is considered as one of the largest and most liquid ?nancial markets. Its grade of ef?ciencyand its complexityis one of the starting points of this volume. From the high complexity of the FX market, Christian Ullrich deduces the - cessity to use tools from machine learning and arti?cial intelligence, e.g., support vector machines, and to combine such methods with sophisticated ?nancial mod- ing techniques. The suitability of this combination of ideas is demonstrated by an empirical study and by simulation. I am pleased to introduce this book to its - dience, hoping that it will provide the reader with interesting ideas to support the understanding of FX markets and to help to improve risk management in dif?cult times. Moreover, I hope that its publication will stimulate further research to contribute to the solution of the many open questions in this area.

Long Run Exchange Rate Dynamics

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Author : Karl Friedrich Habermeier
language : en
Publisher: International Monetary Fund
Release Date : 1999-04

Long Run Exchange Rate Dynamics written by Karl Friedrich Habermeier and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999-04 with Business & Economics categories.

Investigates some traditional propositions in exchange rate economics through an empirical multi-country analysis and relies on real effective (trade weighted) exchange rates, which in principle are more likely to conform to PPP than simple bilateral real exchange rate indices.

Knowledge Information And Expectations In Modern Macroeconomics

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Author : Philippe Aghion
language : en
Publisher: Princeton University Press
Release Date : 2021-01-12

Knowledge Information And Expectations In Modern Macroeconomics written by Philippe Aghion and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-01-12 with Business & Economics categories.

Macroeconomics would not be what it is today without Edmund Phelps. This book assembles the field's leading figures to highlight the continuing influence of his ideas from the past four decades. Addressing the most important current debates in macroeconomic theory, it focuses on the rates at which new technologies arise and information about markets is dispersed, information imperfections, and the heterogeneity of beliefs as determinants of an economy's performance. The contributions, which represent a breadth of contemporary theoretical approaches, cover topics including the real effects of monetary disturbances, difficulties in expectations formation, structural factors in unemployment, and sources of technical progress. Based on an October 2001 conference honoring Phelps, this incomparable volume provides the most comprehensive and authoritative account in years of the present state of macroeconomics while also pointing to its future. The fifteen chapters are by the editors and by Daron Acemoglu, Jess Benhabib, Guillermo A. Calvo, Oya Celasun, Michael D. Goldberg, Bruce Greenwald, James J. Heckman, Bart Hobijn, Peter Howitt, Hehui Jin, Charles I. Jones, Michael Kumhof, Mordecai Kurz, David Laibson, Lars Ljungqvist, N. Gregory Mankiw, Dale T. Mortensen, Maurizio Motolese, Stephen Nickell, Luca Nunziata, Wolfgang Ochel, Christopher A. Pissarides, Glenda Quintini, Ricardo Reis, Andrea Repetto, Thomas J. Sargent, Jeremy Tobacman, and Gianluca Violante. Commenting are Olivier J. Blanchard, Jean-Paul Fitoussi, Mark Gertler, Robert E. Hall, Robert E. Lucas, Jr., David H. Papell, Robert A. Pollak, Robert M. Solow, Nancy L. Stokey, and Lars E. O. Svensson. Also included are reflections by Phelps, a preface by Paul A. Samuelson, and the editors' introduction.

What Determines Real Exchange Rates The Long And Short Of It

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Author : Ronald MacDonald
language : en
Publisher:
Release Date : 2006

What Determines Real Exchange Rates The Long And Short Of It written by Ronald MacDonald and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.

This paper presents a reduced-form model of the real exchange rate. Using multilateral cointegration methods, the model is implemented for the real effective exchange rates of the dollar, the mark, and the yen, over the period 1974-1993. In contrast to much other research using real exchange rates, there is evidence of significant and sensible long-run relationships for a simplified version as well as for the full version of the model. The estimated long-run relationships are used to produce dynamic equations, which outperform a random walk and produce sensible dynamic patterns in the context of an impulse response analysis.

Explaining Foreign Exchange Market Puzzles

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Author : Mr.Norman C. Miller
language : en
Publisher: International Monetary Fund
Release Date : 1999-03-01

Explaining Foreign Exchange Market Puzzles written by Mr.Norman C. Miller and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999-03-01 with Business & Economics categories.

The paper develops a flow model of the exchange rate with speculative capital flows integrated in a rigorous manner. The model is consistent with five foreign exchange market puzzles: (1) occasional discontinuous jumps in the exchange rate; (2) periodic short-term regimes of persistent appreciation/depreciation that can develop into a long swing; (3) the forward discount bias; (4) volatility clusters in the foreign exchange market that create conditional heteroskedasticity; and (5) the dual profitability of betting in the short run against any official foreign exchange intervention, and betting with the intervention in the long run.