Foreign exchange market

About: Foreign exchange market is a research topic. Over the lifetime, 6661 publications have been published within this topic receiving 153384 citations. The topic is also known as: forex & FX.

An Assessment Of The Stock Market And Exchange Rate Dynamics In Industrialized And Emerging Markets

Abstract: This paper adopts an Exponentional General Autoregressive Conditional Heteroskedasticity (EGARCH) framework to explore the relationship between stock prices and exchange rates for two groups of countries: emerging and developed economies. Results show that some positive significant price spillovers from the foreign exchange market to the stock market exist for Canada, Japan, the U.S and India. Findings also show for the developed countries, there is no persistence of volatility in the stock markets and the exchange rate markets. For the emerging economies, findings point to the opposite: volatility is pronounce and enduring.

Motives for intervention

Abstract: Central banks intervene in foreign exchange markets in order to achieve a variety of overall economic objectives, such as controlling inflation, maintaining competitiveness or maintaining financial stability. The precise objectives of policy and how they are reflected in foreign exchange market intervention depend on a number of factors, including the stage of a country’s development, the degree of financial market development and integration, and a country’s overall vulnerability to shocks. The precise definition of which operations in forex markets constitute “intervention” has also been a matter of controversy.

The empirics of currency and banking crises

Abstract: Currency and banking crises are potholes on the road to financial liberalization. It is relatively rare for them to cause a vehicle to break an axle - to bring the process of growth and liberalization to an utter and extended halt - but the flats they cause can result in significant losses of time and output and set back the process of policy reform. The output costs of both currency and banking crises can be a year or more of economic growth and the resolution costs of banking crises have often been the equivalent of two or more years of GNP growth. As capital becomes increasingly mobile, the severity and prevalence of these problems has grown, as amply demonstrated by recent experience in Asia, Latin America, and Europe. There is no shortage of theoretical models of the causes and consequences of banking and financial crises.(1) But in comparison, systematic empirical work has been scarce. For the last several years, therefore, together and with a number of collaborators, we have attempted to reorient work on this subject in empirical directions. In this article, we review this empirical research on currency and banking crises and provide a critical review of related literature. In addition, we offer some suggestions - and cautions - for future research. Currency Crises Contrary to the assumption of convenience made in some other recent writings, currency crises cannot be identified with changes in the exchange rate regime. Not all decisions to devalue or float the exchange rate are preceded by speculative attacks.(2) More importantly, a central bank may successfully defend its currency against attack by using its international reserves to intervene in the foreign exchange market. Alternatively, it may discourage speculation against the currency by raising interest rates or forcing the government to adopt other austerity policies. An innovation of our work therefore has been to construct empirical measures of speculative attacks. We measure speculative pressure as a weighted average of changes in exchange rates, interest rates, and reserves, where all variables are measured relative to those of a center country.(3) Intuitively, speculative pressure can lead to a loss of reserves, be rebuffed by a rise in domestic interest rates, or be conceded by a depreciation or devaluation of the exchange rate.(4) Speculative attacks or currency crises (we use the terms interchangeably) are then defined as periods when this speculative pressure index reaches extreme values. With this distinction in mind, we have analyzed of the experience of more than 20 OECD countries, using data that stretch back to the late 1950s.(5) We find that devaluations - as distinct from currency crises - generally have occurred after periods of overly expansionary monetary and fiscal policies. These expansionary policies lead to price and wage inflation, deteriorating international competitiveness, and weak external accounts. They occur when unemployment is high. as if governments are attempting to stimulate an economy in which unemployment has political and economic costs. But that stimulus leads to a loss of reserves, which jeopardizes exchange rate stability. There are some signs that governments react by adjusting policy in more restrictive directions in an effort to stem the loss of reserves. In episodes that culminate in devaluation, however, these adjustments prove inadequate. Reserves continue to decline, eventually forcing the government to devalue the exchange rate. When devaluation finally occurs, it is accompanied by some monetary and fiscal retrenchment to reassure investors and render the new level of the exchange rate sustainable. As inflationary pressures fall, there is a sustained boost to competitiveness that helps to restore balance to the external accounts. This comes at the expense of sustained unemployment and falling employment and output growth. It is more difficult to generalize about currency crises. …

Competition of noise and collectivity in global cryptocurrency trading: Route to a self-contained market

Abstract: Cross correlations in fluctuations of the daily exchange rates within the basket of the 100 highest-capitalization cryptocurrencies over the period October 1, 2015–March 31, 2019 are studied. The corresponding dynamics predominantly involve one leading eigenvalue of the correlation matrix, while the others largely coincide with those of Wishart random matrices. However, the magnitude of the principal eigenvalue, and thus the degree of collectivity, strongly depends on which cryptocurrency is used as a base. It is largest when the base is the most peripheral cryptocurrency; when more significant ones are taken into consideration, its magnitude systematically decreases, nevertheless preserving a sizable gap with respect to the random bulk, which in turn indicates that the organization of correlations becomes more heterogeneous. This finding provides a criterion for recognizing which currencies or cryptocurrencies play a dominant role in the global cryptomarket. The present study shows that over the period under consideration, the Bitcoin (BTC) predominates, hallmarking exchange rate dynamics at least as influential as the U.S. dollar (USD). Even more, the BTC started dominating around the year 2017, while other cryptocurrencies, such as the Ethereum and even Ripple, assumed similar trends. At the same time, the USD, an original value determinant for the cryptocurrency market, became increasingly disconnected, and its related characteristics eventually started approaching those of a fictitious currency. These results are strong indicators of incipient independence of the global cryptocurrency market, delineating a self-contained trade resembling the Forex.