Open Access
Efficiency and News in Exchange Rate Market. The Euro/Dollar Case
TLDR
In this article, the authors examine the theoretical points that constitute literature on exchange rate market efficiency and show the importance of the news in determining short-run movements in the exchange rate markets.Abstract:
The aim of the paper is twofold: the first one is to examine the theoretical points that constitute literature on exchange rate market efficiency. We give a quick look to the long run, in which high or low efficiency results from the adjustment velocity of prices and production in goods market. We then go to examine literature conclusions about the short run. The second aim is to test the efficiency for the US dollar against the Euro foreign exchange market with anews' exchange rate model using daily data over a period of 19 months. In the model we use, as proxies of 'news', variables generated by the residuals from a VAR model. Our results are consistent with the hypothesis that the forward exchange rate is not an unbiased predictor of the future spot rate. That is, we reject the hypothesis of efficiency and we show the importance of the 'news' in determining short-run movements in the exchange rate markets. The general conclusion we reach is that the euro dollar exchange rate market, from its birth to august 2000, is not efficient because expectations could not be rational, i.e. operators cannot predict risks coming from stock exchange and from uncertainty on future values of economic variables.read more
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Prime Journal of Business Administration and Management
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References
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Journal ArticleDOI
Conditional variance and the risk premium in the foreign exchange market
Ian Domowitz,Craig S. Hakkio +1 more
TL;DR: In this article, the authors investigate the existence of a risk premium in the foreign exchange market, based on the conditional variance of market forecast errors, and show that such a premium exists for the currencies of the United Kingdom, France, Germany, Japan and Switzerland.
Book
Monetary Theory and Policy, 2nd Edition
TL;DR: Monetary Theory and Policy as discussed by the authors presents an advanced treatment of critical topics in monetary economics and the models economists use to investigate the interactions between real and monetary factors, including general equilibrium models of money, models of the short-run real effects of monetary policy, and game-theoretic approaches to monetary policy.
Journal ArticleDOI
The Monetary approach to the balance of payments
TL;DR: The monetary approach as mentioned in this paper uses monetary rather than multiplier and market stability tools to introduce stocks as well as current expenditure flows into the adjustment process so that payments disequilibria are transitory and conditional on domestic monetary policy.
Journal ArticleDOI
Market efficiency and cointegration: an application to the sterling and deutschemark exchange markets
Craig S. Hakkio,Mark Rush +1 more
TL;DR: In this article, the authors use the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency, and find evidence inconsistent with market efficiency for both Germany and the United Kingdom.
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Exchange-Rate Dynamics
TL;DR: In this article, the exchange rate's response to exogenous shocks and the relation between exchange-rate movements and movements in important endogenous variables such as prices, interest rates, output, and the current account are discussed.
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