Predicting future exchange rate changes based on interest rates and holding-period returns differentials net of the forward risk premium effects

2021 ◽  
Author(s):  
Nikolaos Elias ◽  
Dimitris Smyrnakis ◽  
Elias Tzavalis
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
Holding Period ◽  
Exchange Rate Changes ◽  
Future Exchange ◽  
Forward Risk Premium

scholarly journals Modeling and Predictability of Exchange Rate Changes by the Extended Relative Nelson–Siegel Class of Models

2018 ◽  
Vol 6 (3) ◽  
pp. 68
Author(s):  
Hokuto Ishii
Keyword(s):  
Exchange Rate ◽  
Prediction Accuracy ◽  
Factor Model ◽  
Five Factor Model ◽  
Model Fitting ◽  
Extended Model ◽  
Out Of Sample ◽  
Exchange Rate Changes ◽  
Relative Spread ◽  
Future Exchange

This paper investigates the predictability of exchange rate changes by extracting the factors from the three-, four-, and five-factor model of the relative Nelson–Siegel class. Our empirical analysis shows that the relative spread factors are important for predicting future exchange rate changes, and our extended model improves the model fitting statistically. The regression model based on the three-factor relative Nelson–Siegel model is the superior model of the extended models for three-month-ahead out-of-sample predictions, and the prediction accuracy is statistically significant from the perspective of the Clark and West statistic. For 6- and 12-month-ahead predictions, although the five-factor model is superior to the other models, the prediction accuracy is not statistically significant.

scholarly journals Exchange Rate Pass-through and Its Impacts on the Nigeria Economy

2020 ◽  
pp. 44-53
Author(s):  
Obasanmi, Jude Omokugbo
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Time Series Data ◽  
Series Data ◽  
Policy Interventions ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Changes ◽  
High Level ◽  
Exchange Rate Pass Through

Exchange Rate Pass-Through is an approximation of international macroeconomic transmission of prices and thus has implications for the timing of economic policy interventions. Hence, the degree and speed of pass-through is important for formulating policy responses to economic shocks. In this study, the researcher evaluated some channels and impacts of exchanges rate pass-through on the Nigerian economy during the period spanning from 1981 to 2018. Unit root and co-integration tests, as well as the error regression analysis on the time series data for the period 1981-2018 were carried out. The empirical outcomes indicated that Exchange rate changes pass-through interest rate and inflation rate channels on both short and long run and thus significantly affected interest rates and prices of goods and service in Nigeria during the study period. These outcomes yielded key policy insights and outlook which made the researcher to recommend amongst others that Government should ensure that the interest rates are brought to a level that will enable producers access investible funds. When there is high level of funds for production, exports would likely increase ceteris paribus, there by an increase in the foreign exchange earnings for the country and an appreciation of the naira.

scholarly journals Changes in Macroeconomic conditions and capital Return in Indonesia

2020 ◽  
Vol 11 (3) ◽  
pp. 320-328
Author(s):  
Andesta Selvi ◽  
Adam Mohammad ◽  
. Suhel
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Stock Returns ◽  
Money Supply ◽  
Foreign Exchange ◽  
Capital Market ◽  
Company Performance ◽  
Foreign Exchange Reserves ◽  
Exchange Rate Changes ◽  
Investment Process

Purpose: this study aims to examine the influence of changes in inflation, changes in the rupiah exchange rate, changes in the money supply, changes in SBIS, changes in foreign exchange reserves and changes in interest rates on the return of Indonesian Islamic stocks.Methods: this study is focused on looking at conditions of macroeconomic changes that have an impact on the activity of the Islamic capital market, particularly on the return of Islamic stocks listed in the Jakarta Islamic Index. This empirical evidence is related to variable macroeconomic changes, namely changes in inflation, rupiah exchange rate, money supply, foreign exchange reserves, Indonesian Syariah Bank Certificates (SBIS) and interest rates on sharia stock returns for the period January 2014 – December 2019 obtained from Financial publications. Service Authority (OJK) and Bank Indonesia. The analysis technique used is quantitative analysis using multiple regression analysis tools.Results: the results of this study are (1) Variable Changes in Inflation, Changes in the Amount of Money Supply, Changes in Foreign Exchange Reserves, Changes in SBIS have a positive and significant effect on Stock Returns listed on the Jakarta Islamic Index, (2) changes in exchange rates have a negative and significant effect on Stock Returns listed in Jakarta Islamic. Index, (3) the Interest Rate variable has no effect on Stock Returns listed on the Jakarta Islamic Index.Conclusions and Relevance: the approach used by each variable starts with the conventional followed by the study of Islamic macroeconomics, in order to provide a philosophy of science and economics that refers to Baqir Sadr in the Iqtishaduna book. In this study, researchers examined macroeconomic variables on sharia stock returns to prioritize people's welfare and pay close attention to every investment process based on sharia principles. Therefore the public, entrepreneurs, investors and company performance must pay attention to information regarding changes in inflation, changes in the rupiah exchange rate, changes in the money supply, changes in Bank Indonesia Sharia Certificates (SBIS), changes foreign exchange reserves, and changes in interest rates in order to minimize risks for both investors and entrepreneurs. This variable can affect the movement of the capital market so that the return on Islamic stocks also has an effect.

MACROECONOMIC VOLATILITY UNDER HIGH ACCUMULATION OF GOVERNMENT DEBT: LESSONS FROM JAPAN

2012 ◽  
Vol 15 (supp02) ◽  
pp. 1250057 ◽  
Author(s):  
PAUL D. McNELIS ◽  
NAOYUKI YOSHINO
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Risk Premium ◽  
Government Debt ◽  
Dynamic Stochastic General Equilibrium ◽  
High Accumulation ◽  
Macroeconomic Volatility ◽  
Exchange Rate Dynamics ◽  
Dynamic Stochastic

This paper applies Bayesian estimation to an open-economy Dynamic Stochastic General Equilibrium (DSGE) model of Japan, to assess the effects of expanding government debt on interest rates, real exchange rate dynamics, and real sector performance. We find that the emergence of even a small risk premium on government debt will trigger considerable instability in the real and nominal variables. We show that a switch to an exchange-rate rule for monetary policy would considerably moderate the instability induced by a rising risk premium.

The World Economy

1996 ◽  
Vol 157 ◽  
pp. 28-57
Author(s):  
Ray Barrell ◽  
Julian Morgan ◽  
Nigel Pain
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
World Economy ◽  
Significant Risk ◽  
Short Term ◽  
Spare Capacity ◽  
The Us ◽  
The World

It is now quite clear that growth slowed in Europe around the end of 1995, and that it remained low in the first quarter of 1996. However, the most recent information suggests that the slowdown is likely to prove temporary. Early indicators for the second quarter suggest that growth has begun to accelerate, much in line with our forecast published in May. We have made no further adjustment to our forecast for EU wide growth this year, with output still expected to rise by around 1½ per cent this year and around 2¾–3 per cent next year. Recent exchange rate developments should help support demand, as the D-mark, the French franc and other currencies within the D-mark bloc have all depreciated against the dollar in the last few months. A number of economies in Europe appear to have some spare capacity, and can increase output, whilst the US is operating at or above capacity, and a reduction in demand should ease incipient inflationary pressures rather more than it reduces output. The depreciation of the D-mark has been associated with a loosening of monetary policy, with short-term interest rates in Germany being a full point lower than they were a year ago. French short-term interest rates have fallen much more, reflecting the disappearance of a significant risk premium last year. The loosening of policy was timely, and should help offset the deflationary pressures that have come from a slowdown in stock accumulation in both France and Germany and from low investment, especially in Germany.

scholarly journals Is the South African exchange rate volatile? Application of the arch framework

2015 ◽  
Vol 5 (1) ◽  
pp. 110-122
Author(s):  
Thato Julius Mokoma ◽  
Ntebogang Dinah Moroke
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Interest Rates ◽  
South African ◽  
Exchange Rate Volatility ◽  
Arch Model ◽  
High Volatility ◽  
Near Future ◽  
Autoregressive Conditional Heteroscedasticity ◽  
Future Exchange

This study applies the autoregressive conditional heteroscedasticity (ARCH) model to forecast exchange rate volatility in South Africa for the period 1990Q1 to 2014Q2. The ARCH (1) and ARCH (2) models were constructed using four variables; namely, exchange rate, gross domestic product, inflation and interest rates. Upon addressing the issue of stationarity, the models were fitted and the ARCH (1) model was found to be fit. This model revealed a high volatility of exchange rate compared to the ARCH (2) model. Prior to forecasting, the selected model was subjected to a battery of diagnostics tests and was found to be stable and well specified. The forecasts from the ARCH (1) model proved that in the near future, exchange rate will not be highly volatile though SA will experience depreciation in its currency.

scholarly journals Changes in Macroeconomic Conditions and Capital Return in Indonesia

2020 ◽  
Vol 23 (1) ◽  
pp. 187-193
Author(s):  
Andesta Selvi ◽  
◽  
Adam Mohamad ◽  
Feunsri Suhel ◽  
◽  
...  
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Stock Returns ◽  
Money Supply ◽  
Foreign Exchange ◽  
Capital Market ◽  
Company Performance ◽  
Foreign Exchange Reserves ◽  
Exchange Rate Changes ◽  
Investment Process

Abstract. This study is focused on looking at conditions of macroeconomic changes that have an impact on the activity of the Islamic capital market, particularly on the return of Islamic stocks listed in the Jakarta Islamic Index. This empirical evidence is related to variable macroeconomic changes, namely changes in inflation, rupiah exchange rate, money supply, foreign exchange reserves, Indonesian Syariah Bank Certificates (SBIS) and interest rates on sharia stock returns for the period January 2014-December 2019 obtained from Financial publications. Service Authority (OJK) and Bank Indonesia. The analysis technique used is quantitative analysis using multiple regression analysis tools. Purpose. This study aims to examine the influence of changes in inflation, changes in the rupiah exchange rate, changes in the money supply, changes in SBIS, changes in foreign exchange reserves and changes in interest rates on the return of Indonesian Islamic stocks. Results. The results of this study are (1) Variable Changes in Inflation, Changes in the Amount of Money Supply, Changes in Foreign Exchange Reserves, Changes in SBIS have a positive and significant effect on Stock Returns listed on the Jakarta Islamic Index, (2) changes in exchange rates have a negative and significant effect on Stock Returns listed in Jakarta Islamic. Index, (3) the Interest Rate variable has no effect on Stock Returns listed on the Jakarta Islamic Index. Conclusion. The approach used by each variable starts with the conventional followed by the study of Islamic macroeconomics, in order to provide a philosophy of science and economics that refers to Baqir Sadr in the Iqtishaduna book. In this study, researchers examined macroeconomic variables on sharia stock returns to prioritize people’s welfare and pay close attention to every investment process based on sharia principles. Therefore the public, entrepreneurs, investors and company performance must pay attention to information regarding changes in inflation, changes in the rupiah exchange rate, changes in the money supply, changes in Bank Indonesia Sharia Certificates (SBIS), changes foreign exchange reserves, and changes in interest rates in order to minimize risks for both investors and entrepreneurs. This variable can affect the movement of the capital market so that the return on Islamic stocks also has an effect. Keywords: Stock Return; Inflation Change; Rupiah Exchange Rate; Change in Amount of Money Supply; Change in Bank Indonesia Sharia Certificate; Change in Foreign Exchange Reserves; and Change in Interest Rates.

scholarly journals Utjecaj krize na promjene osobne potrošnje pojedinaca: sjećanje na krizu i odluke o potrošnji budućeg dohotka

2017 ◽  
Vol 7 (2) ◽  
pp. 66
Author(s):  
Marko Atelj ◽  
Ivona Mikulandra Volić ◽  
Josipa Perkov
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Binary Logistic Regression ◽  
Natural Logarithm ◽  
Exchange Rate Fluctuations ◽  
Personal Consumption ◽  
Future Income ◽  
The Republic ◽  
Exchange Rate Changes ◽  
The Impact

The impact of the crisis on the change and the characteristics of personal consumption in the Republic of Croatia is a subject of numerous studies. The emergence of the crisis is perceived as an unforeseen shock to the consumer leading to a research about the extent that this shock had on decisions related to personal consumption and spending of future incomes. The question that remains is how long does the memory of the crisis lasts and how much time after the end of the crisis or its decrease it continues to affect decisions regarding the spending of individuals. In this paper, through a survey of 521 respondents, a research was conducted investigating whether the shock caused by the Swiss franc's exchange rate fluctuations is influencing current consumption or the spending of future income through the use of loans. Are individuals expecting a re-occurrence of significant exchange rate changes and interest rates and are they making decisions on spending future income in the light of these expectations? In order to examine how the shock caused by changes in the Swiss franc exchange rate affects opinions about loans a binary logistic regression was used. The results show that the natural logarithm of chance that an individual was affected by the shock relating to his attitude towards loans was positively associated with the shock experience (p

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