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Showing papers on "Foreign exchange market published in 1983"


Journal ArticleDOI
TL;DR: In this paper, the relationship between oil price increases and exchange rates was examined and it was shown that news about oil price rises led to a strengthening of the dollar, whereas during the I979 surge of oil prices the reverse was generally true.
Abstract: The quotations show a sharply divergent pattern in the response of the foreign exchange market to announcements of oil price increases. During the first oil shock, news about oil price rises led to a strengthening of the dollar, whereas during the I979 surge of oil prices the reverse was generally true. When the news was not so bad as feared the dollar fell back in I974, but rose in I979. In 1980 the pattern shifted once again, back to dollar appreciation. Is there a rational fundamental explanation for the behaviour of the foreign exchange market, or is it a matter of traders responding to what other traders arbitrarily think? It is difficult to resolve this question, but some insight can be provided through an analytical examination of the relationship between oil price increases and exchange rates. The paper begins with a theoretical framework for analysing the relation between oil prices and exchange rates, and then uses the theory to explain the behaviour of the foreign exchange market.

407 citations



ReportDOI
TL;DR: Theoretical and empirical research completed over the last decade has dramatically increased our understanding of exchange rate behavior as mentioned in this paper, and the major insight to come from this decade of research is that foreign exchange is a financial asset In an asset pricing framework, current exchange rates reflect the expected values of future exogenous variables.
Abstract: Theoretical and empirical research completed over the last decade has dramatically increased our understanding of exchange rate behavior The major insight to come from this decade of research is that foreign exchange is a financial asset In an asset pricing framework, current exchange rates reflect the expected values of future exogenous variables The purpose of this paper is to survay the empirical evidence on exchange rate behavior, market efficiency and related topics Section 2 presents a stylized history of exchange rate behavior during 1970's Alternative measures of volatility and transaction costs are reviewed Tests of specific exchange rate determination models are presented in Section 3 Empirical studies have been fairly successful in constructing models to explain cross-sectional exchange rate differences and to explain time series exchange rate developments over the medium-run and long-run Following the asset market framework , recent studies have demonstrated that unanticipated exchange rate changes are significantly correlated with "news" concerning fundamental macroeconomic variables Evidence on foreign exchange market efficiency is summurized in Section 4 Efficiency studies remain difficult to formulate (because of small samples and unobserved variables) and difficult to interpret ( because of the joint hypothesis problem) Several recent studies claim that speculative profit opportunities are present, but it is unclear whether these are related to risk premiums or actual market inefficiencies

211 citations


Journal ArticleDOI
TL;DR: In this paper, the forward and spot exchange rates are modelled as an unrestricted bivariate autoregression from weekly data on the New York foreign exchange market for June, 1973 to April, 1980.
Abstract: Forward and spot exchange rates are modelled as an unrestricted bivariate autoregression from weekly data on the New York foreign exchange market for June, 1973 to April, 1980. The null hypothesis that the forward exchange rate is an unbiased estimate of the corresponding future spot exchange rate is tested by means of a nonlinear Wald test and is rejected for all six currencies considered. The results cast doubt on a central assumption in many current models of exchange rate behavior.

187 citations


ReportDOI
TL;DR: In this paper, the West German Bundesbank's use of sterilization during the recent years of exchange-rate flexibility is investigated. And the authors conclude that the Bundesbank has little if any power to influence the exchange rate over that time span without altering current or expected future money-market conditions.

87 citations


Posted Content
TL;DR: The major insight to come from this decade of research is that foreign exchange is a financial asset as mentioned in this paper, and the current exchange rates reflect the expected values of future exogenous variables.
Abstract: Theoretical and empirical research completed over the last decade has dramatically increased our understanding of exchange rate behavior. The major insight to come from this decade of research is that foreign exchange is a financial asset. In an asset pricing framework, current exchange rates reflect the expected values of future exogenous variables. The purpose of this paper is to survay the empirical evidence on exchange rate behavior, market efficiency and related topics. Section 2 presents a stylized history of exchange rate behavior during 1970's. Alternative measures of volatility and transaction costs are reviewed. Tests of specific exchange rate determination models are presented in Section 3. Empirical studies have been fairly successful in constructing models to explain cross-sectional exchange rate differences and to explain time series exchange rate developments over the medium-run and long-run. Following the asset market framework , recent studies have demonstrated that unanticipated exchange rate changes are significantly correlated with "news" concerning fundamental macroeconomic variables. Evidence on foreign exchange market efficiency is summurized in Section 4. Efficiency studies remain difficult to formulate (because of small samples and unobserved variables) and difficult to interpret ( because of the joint hypothesis problem). Several recent studies claim that speculative profit opportunities are present, but it is unclear whether these are related to risk premiums or actual market inefficiencies.

69 citations


Journal ArticleDOI
TL;DR: The so-called "law of one price" implies that if these prices are not equalized, a group of well-financed investment managers could make a risk-free (arbitrage) profit by buying assets in the low-priced country and selling them in the highpriced country as discussed by the authors.
Abstract: In recent years there has been a great deal of attention paid to the possible size and nature of the benefits from international asset investment on the part of financial managers. One aspect of the growth of financial and real international investment is that, in equilibrium, the prices of a homogeneous asset sold in different national locations should be the same after appropriate adjustment for exchange rates (see [2], [3] and [4], for example). This so-called "law of one price" implies that if these prices are not equalized, a group of well-financed investment managers could make a risk-free (arbitrage) profit by buying assets in the low-priced country and selling them in the highpriced country. A direct corollary of this law is that in a frictionless world homogeneous financial assets, such as the stocks of large U.S. corporations, should trade at the same prices domestically and internationally after adjustment for exchange rates and transaction costs.

43 citations


Journal ArticleDOI
TL;DR: In this article, it was shown that changes in the discount rate can have associated announcement effects on the foreign exchange value of the dollar only if these changes are not anticipated by the market.

40 citations


Book
01 Aug 1983
TL;DR: The authors argue that the current monetary arrangements came into effect following years of vigorous debate on the merits of exchange rate flexibility, and some observers appear to forget that these arrangements were not in reality adopted, let alone designed.
Abstract: After a decade of floating exchange rates, international monetary reform is again in the air, and it is thus timely to ask how well (or badly) the current system is functioning. But compared to what? Because the current monetary arrangements came into effect following years of vigorous debate on the merits of exchange rate flexibility, some observers appear to forget that these arrangements were not in reality ‘adopted’, let alone ‘designed.’2 Rather, they were initiated by the collapse of the Bretton Woods regime and given markedly after-the-fact approval by an International Monetary Fund whose members were unable to agree upon an alternative, i.e. any system imposing even minimal restraints on the national policies of members. Since the present time seems no more propitious than the early 1970s for the willing sacrifice of national sovereignty by IMF members,3 any argument for system reform must be solidly grounded in the accumulated experience of floating, not the dogmas of the Bretton Woods era.

37 citations




Journal ArticleDOI
TL;DR: In this paper, the authors present empirical evidence for covered interest parity and speculative efficiency of the foreign exchange market, i.e., the unbiasedness of the forward rate as a predictor of the spot rate.
Abstract: Two key relationships which feature prominently through out modern international monetary theory are: (i) covered interest parity and(ii) speculative efficiency of the foreign exchange market, i.e., the unbiasedness of the forward rate as a predictor of the spot rate. This paper presents some empirical evidence for these two hypotheses using Australian data over the period September 1974 to December 1981 during which the Australian dollar was essentially floating. Both quarterly and overlapping monthly data are used. The results obtained generally provide some support for the two hypotheses.

Journal ArticleDOI
TL;DR: In this article, the authors conduct variance tests and efficient markets tests of three different models of exchange-rate determination; the equilibrium rational-expectations model (ERE), the currency-substitution model (CS), and Dornbusch's exchange rate-dynamics model (ERD).

Journal ArticleDOI
TL;DR: In this paper, the authors examined the foreign exchange market of Singapore from the perspective of market efficiency and further determined if factors such as the unanticipated changes in interest rate differentials and purchasing power parity play a role in the behavior of the exchange rate using a variety of tests.

Posted Content
TL;DR: In this paper, the authors link the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating, and the implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered.
Abstract: The collapse of a fixed exchange rate is typically marked by a sudden balance-of-payments crisis in which"speculators" fleeing from the domestic currency acquire a large portion of the central bank's foreign exchange holdings.Faced with such an attack, the central bank often withdraws temporarily from the foreign exchange market, allowing the exchange rate to float freely before devaluing and returning to a fixed-rate regime. This paper links the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating. An implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered. For sufficiently long transition periods, the floating exchange rate"overshoots" its new peg before appreciating back toward it;for shorter periods, the rate depreciates monotonically to its new fixed level. Accordingly, the central bank's return tothe foreign exchange market can occasion a capital outflow or a capital inflow.

Posted Content
TL;DR: In this article, it was shown that changes in the discount rate can have an associated announcement effect on the foreign exchange value of the dollar only if these changes are not anticipated by the market.
Abstract: Changes in the discount rate can have an associated announcement effect on the foreign exchange value of the dollar only if these changes are not anticipated by the market. This paper provides evidence to support this contention. Specifically, discount rate changes made for reasons other than technical adjustments have not been anticipated fully and consequently, their announcement has had a significant impact on the dollar's exchange rate. Furthermore, results are obtained that support the hypothesis that unanticipated discount rate changes alter the expectation of the rate of future inflation.



Journal ArticleDOI
TL;DR: In this paper, a theoretical model is proposed in which the exchange rate is affected by current and capital account transactions and the central bank intervenes in the foreign exchange market by buying and selling foreign exchange.


Book
01 May 1983
TL;DR: In this article, the authors provide an intimate knowledge of the fundamentals required to cope with the everchanging nature of the money and foreign exchange markets, covering how to read and take advantage of market quotations, the funds manager and the interaction between money and currency markets, funds management in a two-way market, problems and solutions in the trading room of a bank, problems of the multinational non-financial business, returns and risks, in foreign exchange operations, and control of foreign exchange and money market operations.
Abstract: The authors provide an intimate knowledge of the fundamentals required to cope with the everchanging nature of the money and foreign exchange markets. Its emphasis is on the management of down to earth operations, covering how to read and take advantage of market quotations, the funds manager and the interaction between money and foreign exchange markets, funds management in a two-way market, problems and solutions in the trading room of a bank, problems and solutions of the multinational non-financial business, returns and risks, in foreign exchange operations, and control of foreign exchange and money market operations. This new edition is updated to account for recent changes and expanded to emphasize and broaden the treatment of money markets.

Posted Content
TL;DR: In this paper, the authors link the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating, and the implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered.
Abstract: The collapse of a fixed exchange rate is typically marked by a sudden balance-of-payments crisis in which"speculators" fleeing from the domestic currency acquire a large portion of the central bank's foreign exchange holdings.Faced with such an attack, the central bank often withdraws temporarily from the foreign exchange market, allowing the exchange rate to float freely before devaluing and returning to a fixed-rate regime. This paper links the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating. An implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered. For sufficiently long transition periods, the floating exchange rate"overshoots" its new peg before appreciating back toward it;for shorter periods, the rate depreciates monotonically to its new fixed level. Accordingly, the central bank's return tothe foreign exchange market can occasion a capital outflow or a capital inflow.

Book ChapterDOI
01 Jan 1983
TL;DR: In this paper, the exchange-rate model in the EPA World Economic Model (WEM) is described. The model is a multicountry model involving nine individual country models and a small regional block, which are linked together through a tradelinkage submodel and other channels of direct linkages.
Abstract: The aim of this paper is to report on our experience concerning the exchange-rate modelling in the EPA World Economic Model which is currently in the process of development at the Economic Planning Agency. The model is a multicountry model involving nine individual country models and a small regional block, which are linked together through a trade-linkage submodel and other channels of direct linkages. Section II of this paper will summarize the main features of this model. In Section III I shall first discuss some problems involved in endogenizing exchange rates in macroeconometric models, and then explain a particular approach to be used extensively in individual country modelling. It is based on a search method that determines the exchange rate which equilibrates the foreign exchange market in each period. Section IV then reports how this approach has worked out in our country models of Japan, the United States, West Germany, and the United Kingdom. It will also report on the Canadian and Australian models which adopt somewhat different approaches. Finally, in Section V, I shall discuss the differences in macroeconomic behaviour under alternative exchange-rate arrangements, based on simulation analyses of those models mentioned above. The discussion will reveal various important channels through which exchange-rate flexibility transmits the effects of exogenous and policy disturbances to the entire economy.

Journal ArticleDOI
TL;DR: In this paper, the authors analyze the external currency market behavior of banking firms in the context of the modern theory of finance, and obtain an equilibrium in which external banking activities are completely neutral to the value of the firm while the size of the foreign currency market is determinate at the aggregate level.
Abstract: POLICY MAKERS, the financial press, and some economists periodically express alarm over the "unregulated" growth of offshore banking markets, particularly the Eurocurrency markets. Offshore banks operating without benefit of strong government guidance, they contend, may act in ways that are publicly irresponsible, hence may ultimately bring about the collapse of the world's financial system through the uncontrolled credit creation.1 But the size of the offshore banking market is already regulatea by the value maximizing supply behavior of banking firms and the attendant demand adjustments by depositors. External efforts to impose restrictions on behavior may not be effective in producing intended results, such as a reduction in the rate of expansion. Consequently, policy makers may be confronted with a very difficult, if not entirely elusive, task. The task, moreover, may not be one even worth trying so long as investors, both external depositors and equityholders, are not mislead regarding the nature of the risks and costs that they bear. This paper analyzes the external currency market behavior of banking firms in the context of the modern theory of finance. Equilibrium is obtained in which external banking activities are completely neutral to the value of the firm while the size of the external currency market is determinate at the aggregate level.

Book
09 May 1983
TL;DR: A working reference for operating effectively in the foreign exchange markets can be found in this paper, where the major currency markets and economic and technical influences on currency and money markets are discussed.
Abstract: A working reference for operating effectively in the foreign exchange markets. Covers in detail the major currency markets and the economic and technical influences on currency and money markets. Explains the calculations involved in standard foreign exchange and money market formulas. Examines financial futures and gold markets, payment systems, and exposure management and control. Fully cross-referenced with summary headings in the text for quick access to specific information. Five appendixes cover special topics in foreign exchange: key dates, currency basket calculations, Islamic value date calculations, more.

Book ChapterDOI
01 Jan 1983
TL;DR: This paper examined the question of the minimum degree of sophistication that is wise in analysing exchange rates and concluded that simple models of the exchange rate generally do not give satisfaction in empirical work.
Abstract: Simple models of the exchange rate generally do not give satisfaction in empirical work. We lack a standard and simple specification of the exchange rate which is dependable. The same set of equations usually yields substantially different results for different data samples, even with respect to sign, and our successful efforts tend to break down with the extension of the sample period. In these circumstances, it is important to examine the question of the minimum degree of sophistication that is wise in analysing exchange rates. My concern with this question should not imply, however, any brief in favour of complexity as such. My only objection to rudimentary models is that they do not work.1


Book ChapterDOI
01 Jan 1983
TL;DR: In this article, the UK exchange rate has not been pegged, but has been determined by a managed float: that is, by a foreign exchange market in which the authorities intervene, from time to time, as an additional buyer or seller of foreign exchange.
Abstract: In the previous chapter we looked at the consequences of introducing international trade into our model in the framework of a regime of ‘pegged’ exchange rates. However, since 1972, the UK exchange rate has not been pegged, but has been determined by a ‘managed float’: that is, by a foreign exchange market in which the authorities intervene, from time to time, as an additional buyer or seller of foreign exchange. At this stage we do not wish to discuss why the UK authorities chose to act in this way. We therefore consider only the limiting case of a ‘perfectly clean’ float even though, since the collapse of the Bretton Woods system (the ‘occasionally jumping peg’) most countries’ floats have been more or less ‘dirty’.


Journal ArticleDOI
TL;DR: In this paper, the structural coefficient restrictions on goods-price and foreign exchange-rate equations implied by the monetary theory of exchange rates were tested using data from the German hyperinflation (1922-1923).