Topic
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.
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21 Jun 1979
TL;DR: In this article, the authors analyze common financial practices of merchants and manufacturers, commercial banks, and central banks, focusing on the monetization of international trade per se, and analyze the relationship between them.
Abstract: Focusing on monetization of international trade per se, this text analyses common financial practices of merchants and manufacturers, commercial banks, and central banks.
204 citations
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TL;DR: Bekaert and Hodrick as discussed by the authors investigated the expectations hypotheses of the term structure of interest rates and of the foreign exchange market using vector autoregressive methods for U.S. dollar, Deutsche mark, and British pound interest rates.
Abstract: We investigate the expectations hypotheses of the term structure of interest rates and of the foreign exchange market using vector autoregressive methods for U.S. dollar, Deutsche mark, and British pound interest rates and exchange rates. We examine Wald, Lagrange multiplier, and distance metric tests by iterating on approximate solutions that require only matrix inversions. Bias-corrected, constrained VARs provide Monte Carlo simulations. Wald tests grossly overreject the null, Lagrange multiplier tests slightly underreject, and distance metric tests overreject. A common interpretation emerges from the small sample statistics. The evidence against the expectations hypotheses is much less strong than under asymptotic inference. ACCORDING TO THE EXPECTATIONS HYPOTHESIS, information in current interest rates provides the conditional expectation of future asset prices. The expectations hypothesis of the term structure of interest rates ~EH-TS! states that the current term spread between a long-term interest rate and a short-term interest rate is the expected value of a weighted average of the expected future changes in the short-term interest rate. This theory, popularized in the writings of Fisher ~1930!, Keynes ~1930!, and Hicks ~1953!, continues to be a way that many economists think about the determination of long-term interest rates. Fisher ~1930! and Keynes ~1930! also discuss the expectations hypothesis in the foreign exchange market ~EH-FX!, which states that the interest-rate differential between two currencies is the conditional expected value of the rate of depreciation of the high interest-rate currency relative to the low interest-rate currency. Because of covered interest arbitrage, the interest differential equals the forward premium, which is the percentage difference between the forward exchange rate and the spot rate. Hence, the EH-FX is equivalent to the unbiasedness hypothesis, which is the proposition that the logarithm of the forward exchange rate is an unbiased predic* Bekaert and Hodrick are from Columbia University and are Research Associates of the National Bureau of Economic Research. Our research benefitted from the comments of Federico
204 citations
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TL;DR: In this article, the main challenges faced by policymakers in emerging market economies, EM, in light of recent financial crises, and taking into account salient factors like the existence of partial dollarization, imperfect credibility, weak financial systems, and contagion are discussed and criticized for omitting the above factors.
Abstract: The paper reviews the main challenges faced by policymakers in emerging market economies, EM, in light of recent financial crises, and taking into account salient factors like the existence of partial dollarization, imperfect credibility, weak financial systems, and contagion. The standard theory of optimal currency areas is discussed and criticized for omitting the above factors. When these factors are taken into account, an extreme foreign exchange regime like dollarization is shown to become much more attractive. The paper discusses the pros and cons of dollarization and, among other things, shows that the lack of a lender of last resort is not necessarily a major drawback in EM. The paper also discusses inflation targeting, IT. In a formal model, it is shown that IT could be subject to credibility problems similar to those found in exchange rate-based stabilization programs.
204 citations
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TL;DR: In this article, a quantile regression model is adopted to observe the various relationships between stock and foreign exchange markets in six Asian countries to estimate the relationship between stock price index and exchange rate.
199 citations
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TL;DR: In this paper, a hierarchical taxonomy of currencies constructing minimal-spanning trees is derived by analyzing the foreign exchange market data of various currencies, and the key currencies in each cluster are found.
Abstract: By analyzing the foreign exchange market data of various currencies, we derive a hierarchical taxonomy of currencies constructing minimal-spanning trees. Clustered structure of the currencies and the key currency in each cluster are found. The clusters match nicely with the geographical regions of corresponding countries in the world such as Asia or East Europe, the key currencies are generally given by major economic countries as expected.
198 citations