Download or read book Solving Exchange Rate Puzzles with Neither Sticky Prices Nor Trade Costs written by Michael Moore and published by . This book was released on 2019 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with 'deep' habits along the lines of the work of Ravn, Schmitt-Grohe and Uribe. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.

Download or read book Solving Exchange Rate Puzzles with Neither Sticky Prices Nor Trade Costs written by Maurice J. Roche and published by . This book was released on 2007 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Solving Exchange Rate Puzzles Without Sticky Prices Nor Trade Costs written by Michael Moore and published by . This book was released on 2019 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a simple framework in which both the exchange rate disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with 'deep' habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.

Download or read book Exchange Rate Dark Matter written by Mr.Martin D. Evans and published by International Monetary Fund. This book was released on 2012-03-01 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dark matter accounts for 83 percent of the matter in the universe and plays a central role in cosmology modeling. This paper argues that an analogous form of dark matter plays a similarly important role in international macroeconomics. Exchange-rate dark matter is invisible, but its existence can be inferred from observations on real exchange rates and interest rates. I first show that dark matter is the dominant driver of short- and medium-term changes in real exchange rates for the G-7 countries; accounting for more than 90 percent of the variance at the five-year horizon. I then develop a model in which risk shocks account for dark matter's role as a driver of exchange-rate dynamics and other macro variables.

Download or read book Studies in Foreign Exchange Economics written by Martin D D Evans and published by World Scientific Publishing Company. This book was released on 2017-06-28 with total page 791 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book collects my scholarly research on the behavior of foreign exchange rates conducted over the past twenty-five years. The collection includes papers that study the behavior of exchange rates from the traditional macroeconomic and newer microstructure perspectives. The former perspective considers the linkages between the macro economy and currency prices in an effort to understand the behavior of exchange rates over quarters, years and decades. By contrast, the microstructure perspective considers how the details of currency trading affect how macroeconomic information becomes embedded in currency prices, a process which drives exchange-rates over intraday horizons. The book also contains papers with a hybrid perspective that consider the details of currency trading and macroeconomic linkages in an effort to understand exchange-rate dynamics across all horizons.

Download or read book Handbook of International Economics written by Gita Gopinath and published by Elsevier. This book was released on 2014-02-22 with total page 773 pages. Available in PDF, EPUB and Kindle. Book excerpt: What conclusions can be drawn from recent advances in international trade and international macroeconomics? New datasets, theoretical models, and empirical studies have resulted in fresh questions about the world trade and payment system. These chapters--six on trade and six on international macroeconomics--reveal the richness that researchers have uncovered in recent years. The chapters on foreign trade present, among other subjects, new integrated multisector analytical frameworks, the use of gravity equations for the estimation of trade flows, the role of domestic institutions in shaping comparative advantage, and international trade agreements. On international macroeconomics, chapters explore the relation between exchange rates and other macroeconomic variables; risk sharing, allocation of capital across countries, and current account dynamics; and sovereign debt and financial crises. By addressing new issues while enabling deeper and sharper analyses of old issues, this volume makes a significant contribution to our understanding of the global economy. Systematically illuminates and interprets recent developments in research on international trade and international macroeconomics Focuses on newly developing questions and opportunities for future research Presents multiple perspectives on ways to understand the global economy

Download or read book Exchange Rate Economics written by Ronald MacDonald and published by Routledge. This book was released on 2005 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt: ''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""

Download or read book Essays on International Macroeconomics written by Yi Chen and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation attempts to provide new theoretical explanations of some long-standing international macro-finance puzzles, including the consumption-real exchange rate anomaly (i.e. the Backus-Smith puzzle), the consumption correlation puzzle, the real exchange rate volatility puzzle, the equity home bias puzzle and the exchange rate disconnect puzzle, with a particular emphasis on the possible role(s) played by news shocks and / or recursive preferences à la Epstein and Zin (1989). News shocks, defined in a broad sense as shocks to the market's expectations about future changes in driving forces, can have dramatically different impacts on the model dynamics in contrast to traditional unanticipated shocks to the driving forces. Epstein-Zin preferences, by breaking two independent aspects of preferences (attitude toward risks and willingness to substitute consumptions over time), make consumers more sensitive to long-run risks and as a result amplify the impacts of news shocks. Both features have become increasingly popular in the recent closed-economy macro-finance literature. My dissertation is among the first few to use these features to explain a long list of international macro-finance puzzles. Chapter 1 deals with the consumption-real exchange rate anomaly, the consumption correlation puzzle and the real exchange rate volatility puzzle. Data show that real exchange rates are negatively correlated with cross-country relative consumptions; consumptions are less correlated internationally than outputs; and real exchange rates are much more volatile than consumptions. Chapter 1 argues that these facts don't necessarily point to a "lack of risk sharing across countries" or a "low degree of international goods market integration", as are widely thought to be responsible for the above phenomena. The idea is formalized in a frictionless endowment-driven two-country two-good model featuring long-run news, i.e. slowly-moving signals that change the market's expectations about future output growth, and Epstein-Zin preferences. The model predicts that (1) news has opposite effects on the relative consumption and real exchange rate, so the two can be negatively correlated; (2) news has opposite effects on the home and foreign consumptions, so the cross-country consumption correlation can be low; (3) news makes the inter-temporal marginal rate of substitution (IMRS) excessively volatile relative to consumption growth, so the real exchange rate-consumption volatility ratio can be high. Intuitively, prediction (1) is true because news shocks behave as a demand shifter in the short run. Unlike unanticipated supply shocks, news shocks disturb the relative demand curve and trace out an upward-sloping relative supply curve. Prediction (2) can be justified by the fact that news does not materialize on impact (Christmas hasn't come yet), meaning that responses of consumptions to news are essentially a "zero-sum game" in the short run. Prediction (3) can be understood by noticing that news generates a dynamic wedge between the IMRS and the contemporaneous consumption growth. Calibrated through a structural vector auto-regression (SVAR) exercise, the model quantitatively replicates all the puzzling facts mentioned above. I also investigate the plausibility of two alternative explanations of the puzzles. Neither an incomplete-market model nor a trade-cost model can jointly account for all the facts. Chapter 2 incorporates EZ preferences in an otherwise standard open-macro model and shows that EZ preferences play a role of raising the home bias in equities, i.e. the bias of equity portfolios toward home assets, relative to the standard constant-relative-risk-aversion (CRRA) preferences. This happens because EZ preferences generate a long-run risk hedging demand that contributes to a positive covariance between the relative expenditure and the excess equity return. As a result the domestic equity is more likely a good asset as it pays off more whenever investors are willing to spend more. Additional main findings can be summarized as follows. First, using least structural information, we show that the degree of equity home bias depends on the conditional covariance-variance ratio between the relative expenditure and the excess equity return, which is in contrast to the CRRA models' counterfactual prediction that the degree of equity home bias relies on the conditional covariance-variance ratio between the real exchange rate and the excess equity return. Second, we solve for the optimal portfolio as an explicit function of the structural parameters using Devereux and Sutherland (2011)'s approach. Analytical solutions clearly show that EZ models tilt optimal portfolios toward local equities for a wide range of parameterizations relative to CRRA models. Third, the decomposition of equity home bias into two terms indicates that the relative contribution of the consumption covariance term and the portfolio covariance term to the rise in home bias relies on the persistence of endowment shocks. Chapter 3 looks into the exchange rate disconnect puzzle. Exchange rates seem to be disconnected from macro fundamentals: current and past macro fundamentals have a hard time accounting for the movements in nominal exchange rates (also known as the Meese-Rogoff puzzle); both nominal and real exchange rates appear excessively volatile relative to macro fundamentals; exchange rates don't seem to follow the strong cyclical patterns implied by most standard models. Chapter 3 argues that allowing for news about future money supply in a sticky-price open-economy model can shed light on the disconnect puzzle. News shocks, unlike unanticipated shocks, can affect exchange rates on impact but have muted effects on the contemporaneous macro variables. Two additional assumptions are made to make the mechanism work. First, only a fraction of households have access to the international financial markets while the rest leads a hand-to-mouth life. As news shocks have opposite impacts on the consumptions of two types of households, the aggregate consumption is less responsive. Second, export prices are denominated in local currencies. This assumption helps eliminate the spending-switching effects of nominal exchange rate movements. Overall the model is shown to move things in right directions both qualitatively and quantitatively.

Download or read book NBER Macroeconomics Annual 2000 written by Ben Bernanke and published by Mit Press. This book was released on 2001-02-19 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual presents, extends, and applies pioneering work in macroeconomics and stimulates work by macroeconomists on important policy issues. Each paper in the Annual is followed by comments and discussion.

Download or read book Covered Interest Parity Deviations Macrofinancial Determinants written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2019-01-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).

Download or read book Exchange Rate Economics written by Paul de Grauwe and published by MIT Press. This book was released on 2005 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: Discussions of the different theoretical and empirical paradigms for setting and predicting exchange rates.

Download or read book The Macroeconomic Effects of Trade Tariffs written by Jesper Lindé and published by International Monetary Fund. This book was released on 2017-07-07 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any real or nominal effects.

Download or read book Exchange Rate Volatility and Trade Flows Some New Evidence written by International Monetary Fund and published by International Monetary Fund. This book was released on 2004-05-19 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: NULL

Download or read book Natural Resources Neither Curse nor Destiny written by Daniel Lederman and published by World Bank Publications. This book was released on 2006-10-23 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'Natural Resources: Neither Course nor Destiny' brings together a variety of analytical perspectives, ranging from econometric analyses of economic growth to historical studies of successful development experiences in countries with abundant natural resources. The evidence suggests that natural resources are neither a curse nor destiny. Natural resources can actually spur economic development when combined with the accumulation of knowledge for economic innovation. Furthermore, natural resource abundance need not be the only determinant of the structure of trade in developing countries. In fact, the accumulation of knowledge, infrastructure, and the quality of governance all seem to determine not only what countries produce and export, but also how firms and workers produce any good.

Download or read book Imperfect Knowledge Economics written by Roman Frydman and published by Princeton University Press. This book was released on 2023-09-26 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Trades Quotes and Prices written by Jean-Philippe Bouchaud and published by Cambridge University Press. This book was released on 2018-03-22 with total page 464 pages. Available in PDF, EPUB and Kindle. Book excerpt: The widespread availability of high-quality, high-frequency data has revolutionised the study of financial markets. By describing not only asset prices, but also market participants' actions and interactions, this wealth of information offers a new window into the inner workings of the financial ecosystem. In this original text, the authors discuss empirical facts of financial markets and introduce a wide range of models, from the micro-scale mechanics of individual order arrivals to the emergent, macro-scale issues of market stability. Throughout this journey, data is king. All discussions are firmly rooted in the empirical behaviour of real stocks, and all models are calibrated and evaluated using recent data from Nasdaq. By confronting theory with empirical facts, this book for practitioners, researchers and advanced students provides a fresh, new, and often surprising perspective on topics as diverse as optimal trading, price impact, the fragile nature of liquidity, and even the reasons why people trade at all.

Download or read book Handbook of Exchange Rates written by Jessica James and published by John Wiley & Sons. This book was released on 2012-05-29 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.