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stochastic differential equations which describe the dynamic paths of a vector of state variables, prices, and PPP deviations …
Persistent link: https://www.econbiz.de/10005368178
This paper applies a new method to investigate the foreign exchange risk premium. The method is new in the sense that it utilizes the time-varying second moment expectations implied by foreign currency option pricing. The vast empirical literature on the risk premium generally neglects the role...
Persistent link: https://www.econbiz.de/10005368315
A defining stylized fact associated with exchange-rate-based (ERB) stabilization programs is that their initial phase is characterized by several years of expansion in private consumption and a gradual appreciation of the real exchange rate. In this paper, I argue that standard optimizing models...
Persistent link: https://www.econbiz.de/10005368531
Output growth is negatively correlated with inflation, and detrended output is positively correlated with inflation, in the major North American and European economies. In addition, output growth and detrended output lead inflation. I explore the consistency of these correlations with three...
Persistent link: https://www.econbiz.de/10005514184
Portfolio rebalancing is a key driver of the Uncovered Equity Parity (UEP) condition. According to UEP, when foreign equity holdings outperform domestic holdings, domestic investors are exposed to higher exchange rate exposure and hence repatriate some of the foreign equity to decrease their...
Persistent link: https://www.econbiz.de/10010784194
We analyze the foreign exchange trading earnings of large U.S commercial banks over the past several years. In particular, we use several approaches to try to determine to what extent these profits can be attributed either to position-taking by banks or to the provision of intermediation...
Persistent link: https://www.econbiz.de/10005368237
In this paper I address some of the issues associated with measuring the profits and losses from intervention and show that U.S intervention since the beginning of generalized floating in 1973 has earned positive economic profits for the U.S. monetary authorities. Profitability has been largest...
Persistent link: https://www.econbiz.de/10005368421
This paper examines three alternative measures of exchange rate risk that could be used to develop a risk-based capital requirement for banks with foreign-exchange exposure. One measure, the standard deviation of the portfolio, is constructed under the assumption that exchange rate changes are...
Persistent link: https://www.econbiz.de/10005368422
This paper addresses the merits of using the parallel exchange rate as a guide to setting the official exchange rate. Ideally, policymakers would set the exchange rate at the level that would balance trade and sustainable capital flows--that level is referred to as the equilibrium exchange rate....
Persistent link: https://www.econbiz.de/10005368428
We introduce a new high-frequency foreign exchange dataset from EBS (Electronic Broking Service) that includes trading volume in the global interdealer spot market, data not previously available to researchers. The data also gives live transactable quotes, rather than the indicative quotes that...
Persistent link: https://www.econbiz.de/10005368468