A small open economy model emphasizing the endogenous interestrate arbitrage was employed to examine whether arbitrage activities would dampen or augment exchange rate volatility against random disturbances. Based on numerical simulation, increased risk aversion of arbitragers was observed to...

This paper examines the relationship between exchange rate pass-through and exchange rate volatility. Numerical simulation suggests that increased degree of pass-through may be stabilizing or destabilizing the exchange rate, mainly depending on the source of random disturbances. The result is...

The paper seeks to unfold some of the popular myths and realities concerning the recent financial crisis in the MIT (Malaysia-Indonesia-Thailand) countries. In this connection, it also analyses the various models of speculative attacks and their applicability, and the systemic implications of...

Ever since the early 1980s, major industrial countries have been suffering from severe multi-lateral trade imbalances, accompanied by tremendously volatile exchange rates. This paper examines the relationship between trade balance and exchange rate volatility. A stochastic macroeconomic model...

An ARDL model is estimated and subsequently used to forecast the exchange rate of the Kuwaiti dinar (KD) against the U.S. dollar. It is demonstrated that this exchange rate is related to the exchange rates of the yen, mark and pound against the dollar in accordance with the arrangement of...

A simulation exercise is conducted to find out if the profitability of forecasting-based currency trading is more related to the ability of the underlying model to predict the direction of change than the magnitude of the forecasting error. Theoretical considerations show that a correct...

We investigate long-run relations and short-run dynamics between China’s bilateral trade balance and real exchange rates with thirteen major trading partners over 1981-2008. Maximum likelihood tests of cointegration reveal no evidence of significant long-run relationship between the two...

The objective of this study is to examine the impact of exchange rate on Nigeria’s trade balance. Time series data on trade balance, external reserves, exchange rate, money supply and real GDP were used in the analysis and the data were subjected to unit root tests to determine their time...

The paper critically considers the endogenous Optimum Currency Areas (or e-OCAs) theory, focussing initially on early studies having identified a relevant link between the creation of a monetary union and an upgrading of trade intensity between member countries, on the one hand, and the increase...

While many explanations have been put forward for the failure of exchange rate models to outperform the random walk in out-of-sample forecasting, a simple explanation is the use of measures of forecasting accuracy that depend entirely on the magnitude of the forecasting error. By using simulated...