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- Bayesian forecasting (1)
- Currency returns (1)
- Euro area (1)
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- Granger tests of causality (1)
- Heterogeneity (1)
- Information risk premium (1)
- Interest rate convergence (1)
- Interest rates (1)
- Monetary policy; capital mobility; Mundell-Fleming model (1)
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- Order flow (1)
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- Private information (1)
- Purchasing power parity (1)
- Real exchange rates (1)
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- Publication
Articles 1 - 9 of 9
Full-Text Articles in Business
Adjusting To The Euro, Gabriel Fagan, Vitor Gaspar
Adjusting To The Euro, Gabriel Fagan, Vitor Gaspar
CRIF Seminar series
In this paper we argue that, for a group of converging economies of the European Union, participation in the euro area has been associated with easier access to financing by domestic economic agents. Easier access to financing was a significant impulse leading to a sharp increase in households' expenditures and a corresponding fall in the savings ratio. Increased expenditure was associated with current account deficits, a sharp fall in the net foreign asset position and an increase in the households' indebtedness. At the same time there was a sizeable increase in the real exchange rate. In this paper, we show …
Have Absolute Price Levels Converged For Developed Economies? The Evidence Since 1870, Lein-Lein Chen, Seungmook Choi, John Devereux
Have Absolute Price Levels Converged For Developed Economies? The Evidence Since 1870, Lein-Lein Chen, Seungmook Choi, John Devereux
CRIF Working Paper series
We compare price level and income convergence since 1870 for eleven developed economies using implicit price deflators derived from the GDP data of Maddison (1995, 2001 and 2003). We find that “sigma” and “beta” convergence for prices occurs later and to a lesser extent than income. Price levels converge after 1950 while income convergence begins in the 1880’s. We find no evidence for stochastic convergence or for “club” price convergence. JEL codes F3, F4.
Interest Rate Linkages And Capital Market Integration: Evidence From The Americas, Bharat Bhalla, Anand Shetty
Interest Rate Linkages And Capital Market Integration: Evidence From The Americas, Bharat Bhalla, Anand Shetty
CRIF Seminar series
In this paper, we study the long-run co-movement among the real interest rates of the U.S., Canada, and a select group of Latin American countries to assess the extent of financial market integration between these countries during a period of high capital mobility. The findings of the study support a long-run relationship between the short-term U.S. real interest rate and those of the Latin American countries, while it fails to support such a relationship between the U.S. and Canadian real interest rates.
Fiscal And Current Account Balances In A Model With Sticky Prices And Distortionary Taxes, G.C. Lim, Paul D. Mcnelis
Fiscal And Current Account Balances In A Model With Sticky Prices And Distortionary Taxes, G.C. Lim, Paul D. Mcnelis
CRIF Working Paper series
This paper examines the interaction of fiscal and current account balances in open economies subject to monopolistic competition with sticky price-setting behavior, adjustment costs for investment, and distortionary labor income taxes. We find that the elasticity of exports with respect to the real exchange rate influences the correlation between the balances. In particular, in simulations with recurring shocks to productivity, we find that the balances are positively correlated for a range of export elasticities. However, for simulations with recurring real government expenditure shocks, we find that the balances are positively correlated under high export elasticity but negatively correlated under low …
Information Risk In The International Currency Markets: Evidence From The Violation Of Uirp, Bill B. Francis, Kimberly Gleason, Delroy M. Hunter, Charles A. Malgwi
Information Risk In The International Currency Markets: Evidence From The Violation Of Uirp, Bill B. Francis, Kimberly Gleason, Delroy M. Hunter, Charles A. Malgwi
CRIF Seminar series
Drawing on the theoretical and empirical evidence that private information risk is priced in the expected returns of equities, we hypothesize that information risk premium is an important component of the risk premium that leads to the violation of uncovered interest rate parity (UIRP). Using an asset pricing model in which the risk factors are a world currency factor, a world equity factor, and a world private information factor, we find that UIRP is violated for 28 single currencies plus the euro and that violation is due to the existence of a significant time-varying risk premium. The component of the …
Why Do Banks Promise To Pay Par On Demand?, Gerald P. Dwyer, Jr., Margarita Samartín
Why Do Banks Promise To Pay Par On Demand?, Gerald P. Dwyer, Jr., Margarita Samartín
CRIF Seminar series
We survey the theories on why banks promise to pay par on demand and examine evidence on the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature can be broadly divided into four strands: liquidity provision; asymmetric information; regulatory restrictions and a medium of exchange. One strand of the literature argues that banks offer to pay par on demand in order to provide liquidity insurance services to consumers who are uncertain about their future time preferences and who have investment opportunities inconsistent with some …
Can The Policy Trilemma Be Exposited In The Mundell-Fleming Framework?, Russell S. Boyer
Can The Policy Trilemma Be Exposited In The Mundell-Fleming Framework?, Russell S. Boyer
CRIF Seminar series
There is a general recognition that there are deficiencies in the Mundell-Fleming model. Nonetheless, Rose [2000] has stated that Mundell was the first to exposit the Policy Trilemma, which identifies an intrinsic incompatibility among: high capital mobility, fixed exchange rates, and monetary autonomy. We look for the source of Rose’s claim. All of Mundell’s formal modeling after 1964 assumes that capital mobility is zero, so we look to earlier work for verification. The paper in Kyklos states clearly that in comparing equilibrium positions, the impotence of monetary policy is independent of the degree of capital mobility. Two further claims deriving …
Renminbi Revaluation, Euro Appreciation And Chinese Markets: What Can We Learn From Data?, Paul D. Mcnelis, Salih N. Neftçi
Renminbi Revaluation, Euro Appreciation And Chinese Markets: What Can We Learn From Data?, Paul D. Mcnelis, Salih N. Neftçi
CRIF Working Paper series
This paper examines financial market data to assess the likelihood of renminbi revaluation and its implications for Chinese share price increases, given the continuing appreciation of the Euro against the U.S. dollar. We find that the 3-month non-deliverable forward premia are key series linking these variables. The forward premia predict series A share-price changes, while Euro/US dollar exchange rates in turn predict foreward-premia. Bayesian models outperform standard linear models for forecasting performance.
Purchasing Power Parity And Heterogeneous Mean Reversion, Kees G. Koedijk, Ben Tims, Mathijs A. Van Dijk
Purchasing Power Parity And Heterogeneous Mean Reversion, Kees G. Koedijk, Ben Tims, Mathijs A. Van Dijk
CRIF Seminar series
This paper analyzes the properties of multivariate tests of purchasing power parity (PPP) that fail to take heterogeneity in the speed of mean reversion across real exchange rates into account. We compare the performance of homogeneous and heterogeneous unit root testing methodologies. The recent literature has successfully contested several severe restrictions on the structure of the model, but the assumption of homogeneous mean reversion is still widely used and its consequences are virtually unexplored. Using Monte Carlo simulation, we uncover important adverse properties of the methodology that relies on homogeneous estimation and testing. More specifically, power functions are low and …