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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TL;DR: The authors discusses the domestic implications of the recent large-scale use of foreign exchange intervention by emerging market economies to resist currency appreciation, including high intervention costs, monetary imbalances, overheated credit and asset markets, and very liquid and perhaps distorted banking systems.
Abstract: This paper discusses some of the domestic implications of the recent large-scale use of foreign exchange intervention by emerging market economies to resist currency appreciation. Over the past five years, many countries have adopted an accommodating monetary policy while intervening. Despite the prolonged period of low interest rates that resulted, various other forces have kept inflation under control and so eased one policy dilemma for central banks. Nevertheless, large and prolonged reserve accumulation can still create risks other than near-term inflation. These include: high intervention costs; monetary imbalances; overheated credit and asset markets; and very liquid and perhaps distorted banking systems.
134 citations
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TL;DR: Based on evidence obtained from the IMF's 2001 Survey on Foreign Exchange Market Organization, the author argues that some central banks in developing and transition economies may be able to conduct foreign exchange intervention more effectively than the central banks of developed countries issuing the major international currencies as discussed by the authors.
Abstract: Based on evidence obtained from the IMF`s 2001 Survey on Foreign Exchange Market Organization, the author argues that, for several reasons, some central banks in developing and transition economies may be able to conduct foreign exchange intervention more effectively than the central banks of developed countries issuing the major international currencies. First, these central banks do not always fully sterilize their foreign exchange interventions. In addition, they issue regulations and conduct their foreign exchange operations in a way that increases the central bank`s information advantage and the size of their foreign exchange intervention relative to foreign exchange market turnover. Some of the central banks also use moral suasion to support their foreign exchange interventions.
134 citations
TL;DR: In this article, the authors present new empirical results that elucidate the dynamics of the foreign exchange market, including the bias observed in the forward discount as a predictor of the future spot rate is not attributable to an exchange risk premium.
Abstract: The paper presents new empirical results that elucidate the dynamics of the foreign exchange market. The first half of the paper is an updated study of the exchange rate expectations held by market participants, as reflected in responses to surveys, and contains the following conclusions. First, the bias observed in the forward discount as a predictor of the future spot rate is not attributable to an exchange risk premium, as is conventionally believed. Second, at short horizons forecasters tend to extrapolate recent trends, while at long horizons they tend to forecast a reversal. Third, the bias in expectations is robust in the samples, based on eight years of data across five currencies. The second half of the paper abandons the framework in which all market participants share the same forecast, to focus on the importance of heterogeneous expectations. Tests suggest that dispersion of opinion, as reflected in the standard deviation across respondents in the survey, affects the volume of trading in the market, and, in turn, the degree of volatility of the exchange rate. An example of how conflicting forecasts can lead to swings in the exchange rate is the model of "chartists and fundamentalists." The market weights assigned to the two models fluctuate over time in response to recent developments, leading to fluctuations in the demand for foreign currency. The paper ends with one piece of evidence to support the model: the fraction of foreign exchange forecasting services that use "technical analysis" did indeed increase sharply during 1983-85, but declined subsequently.
132 citations
TL;DR: In this article, the impact of market activity and news on the volatility of returns in the exchange market for Japanese Yen and US dollars was examined using three categories of news, and the effects of news on volatility before, during and after news arrival were examined.
132 citations
TL;DR: In this paper, the authors implement a methodology to identify and measure premia in the pricing of forward foreign exchange that involves application of signal-extraction techniques from the engineering literature, and diagnostic tests indicate that these methods are quite successful in capturing the essence of the time-series properties of premium terms.
Abstract: In this paper, we implement a methodology to identify and measure premia in the pricing of forward foreign exchange that involves application of signal-extraction techniques from the engineering literature. Diagnostic tests indicate that these methods are quite successful in capturing the essence of the time-series properties of premium terms. The estimated premium models indicate that premia show a certain degree of persistence over time and that more than half the variance in the forecast error that results from the use of current forward rates as predictors of future spot rates is accounted for by variation in premium terms. The methodology can be applied straightforwardly to the measurement of unobservables in other financial markets. THERE EXISTS A GROWING body of empirical research on premia in the pricing of forward foreign exchange. Conditional on the hypothesis that the foreign exchange market is efficient or rational, the existence of time-varying premia has been documented in the literature by Fama [6], Hansen and Hodrick [10, 11], Hodrick and Srivastava [15, 16], Hsieh [171, and Korajczyk [20]. Frankel [9] fails to identify such premia, and Domowitz and Hakkio [51 obtain different results for different currencies.
131 citations