Exchange rate

About: Exchange rate is a research topic. Over the lifetime, 47255 publications have been published within this topic receiving 944563 citations. The topic is also known as: foreign-exchange rate & forex rate.

On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects

Abstract: Using a sample of 32 developed and developing countries we analyze the empirical characteristics of Sudden Stops in capital flows and the relevance of balance sheet effects in the likelihood of their materialization. We find that large real exchange rate (RER) fluctuations coming hand in hand with Sudden Stops are basically an emerging market (EM) phenomenon. Sudden Stops seem to come in bunches, grouping together countries that are different in many respects. However, countries are similar in that they remain vulnerable to large RER fluctuations - be it because they could be forced to large adjustments in the absorption of tradable goods, and/or because the size of dollar liabilities in the banking system (i.e., domestic liability dollarization, or DLD) is high. Openness, understood as a large supply of tradable goods that reduces leverage over the current account deficit, coupled with DLD, are key determinants of the probability of Sudden Stops. The relationship between Openness and DLD in the determination of the probability of Sudden Stops is highly non-linear, implying that the interaction of high current account leverage and high dollarization may be a dangerous cocktail.

Exchange rate misalignment : concepts and measurement for developing countries

Abstract: The 1994 devaluation of CFA francs in West Africa, the Mexican currency crisis in that same year, and the Asian crises that erupted in mid-1997 are reminders of the severe dislocations that can be caused by exchange rate misalignment. However a consensus on the importance of preventing exchange rate misalignment has not provided systematic guidance on definitions and measurement. Recent macroeconomic disruptions support the argument that growing financial integration has increased the urgency of providing accurate measures of long-run equilibrium exchange rates. For its analytical depth and its practical techniques for measurement, Exchange Rate Misalignment is an invaluable resource for policymakers and foreign exchange specialists in both the public and private sectors.

Exchange Rates, Equity Prices, and Capital Flows

Abstract: We develop an equilibrium model in which exchange rates, stock prices and capital flows are jointly determined under incomplete forex risk trading. Incomplete hedging of forex risk, documented for US global mutual funds, has three important implications: 1) exchange rates are almost as volatile as equity prices when the forex liquidity supply is not infinitely price elastic; 2) higher returns in the home equity market relative to the foreign equity market are associated with a home currency depreciation; 3) net equity flows into the foreign market are positively correlated with a foreign currency appreciation. The model predictions are strongly supported at daily, monthly and quarterly frequencies for 17 OECD countries vis-a-vis the US. Moreover, correlations are strongest after 1990 and for countries with higher market capitalization relative to GDP, suggesting that the observed exchange rate dynamics are indeed related to equity market development.

The obstinate passion of foreign exchange professionals: Technical analysis

Abstract: Technical analysis involves the prediction of future exchange rate (or other asset-price) movements from an inductive analysis of past movements. A reading of the large literature on this topic allows us to establish a set of stylised facts, including the facts that technical analysis is an important and widely used method of analysis in the foreign exchange market and that applying certain technical trading rules over a sustained period may lead to significant positive excess returns. We then analyze four arguments that have been put forward to explain the continuing widespread use of technical analysis and its apparent profitability: that the foreign exchange market may be characterised by not-fully-rational behaviour; that technical analysis may exploit the influence of central bank interventions; that technical analysis may be an efficient form of information processing; and finally that it may provide information on non-fundamental influences on foreign exchange movements. Although all of these positions may be relevant to some degree, neither non-rationality nor official interventions seem to be widespread and persistent enough to explain the obstinate passion of foreign exchange professionals for technical analysis.