Long Memory in Exchange Rate Volatility

Financial Asset ◽

Model Structure ◽

Continuous Stream ◽

Considering rapidly evolving technology and effective markets, wherein information and news are quickly and effectively reflected in financial asset prices, the positions of investors trading in financial markets regarding financial asset prices vary according to the continuous stream of information coming to the market. However, markets are not fully efficient in terms of maintaining a long memory that enables future pricing estimates based on the past market price of the financial asset. Revealing the existence of a long memory structure is essential to the development of monetary policies since exchange rates that tend to return to average exert high resistance. In this study, the exchange rate’s long-range dependence is determined in the scope of the log-periodogram estimator and using a fractional model structure, the average model, and the variance model structure related to the exchange rate between February 22, 2001–March 16, 2020 are examined. In this context, the parameters in the model allow an examination of the long memory process. According to the fractionally integrated exponential generalized autoregressive conditional heteroskedasticity model, it is determined that the effects of shocks in the exchange rate market continue and persist for a long period. Policy suggestions within the scope of exchange rates are evaluated within model outputs.

Macroeconomic Fundamentals and the Exchange Rate Volatility: Empirical Evidence From Somalia

SAGE Open ◽

10.1177/2158244019898841 ◽

2020 ◽

Vol 10 (1) ◽

pp. 215824401989884

Author(s):

Mohamed Ibrahim Nor ◽

Tajul Ariffin Masron ◽

Tariq Tawfeeq Yousif Alabdullah

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Regulatory Authority ◽

Rate System ◽

Macroeconomic Factors ◽

Post Conflict ◽

Macroeconomic Fundamentals ◽

Exchange Rate System ◽

The purpose of this research is to investigate the effect of macroeconomic factors on the volatility of Somalia’s unregulated exchange rates. While utilizing the EGARCH (exponential generalized autoregressive conditional heteroskedastic) model, this study found that the unregulated exchange rate volatility of Somalia is influenced by its own shocks and the macroeconomic factors. This study implies that although Somali shilling circulated without regulatory authority for the period of the statelessness, this circulation has been accompanied by volatile exchange rates. This phenomenon makes this study an appealing work that should be pursued further. Hence, this study contributes notably to the process of reforming the exchange rate system and the monetary policy of the post-conflict economy of Somalia. In addition, the results of this study imply that even in times of war and lawlessness the laws of economics do not change completely.

ASSET PRICE SHOCK RESPONSE TO SHOCK CAPITAL FLOW, EXCHANGE RATE AND INTEREST RATE: CASE STUDY OF 16 EMERGING MARKET COUNTRIES

Journal of Developing Economies ◽

10.20473/jde.v1i2.3294 ◽

2017 ◽

Vol 1 (2) ◽

pp. 14

Author(s):

Rachman Guswardi

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Interest Rates ◽

Capital Flows ◽

Asset Prices ◽

Emerging Market ◽

Capital Inflows ◽

Emerging Market Countries ◽

The Exchange Rate ◽

Positive Shock

Capital flows to developing countries and emerging markets in the world is constantly increasing. However, the crisis that occurred in 2008 and 2011 caused concern for investors. A series of policies have been carried out in several emerging market countries to take steps prudence in controlling capital flows. This study aimed to analyze the response of asset prices to the shock caused by capital inflows, interest rates and exchange rates and analyzes the contribution of shock in capital inflows, interest rates and exchange rates on asset prices in 16 emerging market countries (India, Brazil, Russia, Indonesia, Republic of South Africa, Mexico, Thailand, South Korea, Colombia, Philippines, Egypt, Hong Kong, Peru, Czech, Bangladesh, Hungary) in the year 2001-2015. The method used is quantitative method using Panel Vector Auto Regression models. The results of this study show that the first shock of positive capital inflows will affect asset prices, both that a positive shock on interest rates will affect asset prices, the third that the positive shock of the exchange rate would affect asset prices. The variables that have the biggest contribution in influencing asset prices is the exchange rate which further interest rates and the smallest is the capital inflows.

The effect of real exchange rates and their volatilities on the selected agricultural commodity exports: A case study on Turkey, 1971–2010

Agricultural Economics (Zemědělská ekonomika) ◽

10.17221/122/2012-agricecon ◽

2013 ◽

Vol 59 (No. 5) ◽

pp. 235-246 ◽

Cited By ~ 1

Author(s):

H. Yanikkaya ◽

H. Kaya ◽

O.M. Kocturk

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Cross Sections ◽

Real Exchange Rates ◽

Agricultural Commodity ◽

Data Set ◽

The Real ◽

This study investigates the effect of the exchange rate volatility and the real exchange rate on the bilateral agricultural exports flows of Turkey to 46 countries. A panel data set, which contains 46 cross-sections and 1840 observations, is used for exports of the selected agricultural commodities to countries from 1971 to 2010. Our empirical results based on a gravity equation show that while the exchange rate volatility does not exert a significant effect on the Turkish agricultural commodity exports, the real exchange rate has a statistically significant effect on the agricultural commodity export flows. Regardless of the region chosen, raisins and tobacco exports are very much sensitive to the real exchange rates. It means that any depreciation in the Turkish Lira leads to higher exports for these commodities. We have also some interesting results on other commodities. Exports of dried figs show no sensitivity to the exchange rate or its volatilities, except for the EU countries. For the full sample, exports of citrus, grape and hazelnuts increases as the TL depreciates. The sensitivity of hazelnut to the real exchange rates varies among regions.  

Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates?

The American Economic Review ◽

10.1257/aer.20160409 ◽

2019 ◽

Vol 109 (6) ◽

pp. 2208-2244 ◽

Cited By ~ 8

Author(s):

Hanno Lustig ◽

Adrien Verdelhan

Keyword(s):

Exchange Rate ◽

Financial Markets ◽

Exchange Rates ◽

Risk Premia ◽

International Financial Markets ◽

The Exchange Rate ◽

Free Environment ◽

Exchange Rate Predictability

We assume that domestic (foreign) agents, when investing abroad, can only trade in the foreign (domestic) risk-free rates. In a preference-free environment, we derive the exchange rate volatility and risk premia in any such incomplete spanning model, as well as a measure of exchange rate cyclicality. We find that incomplete spanning lowers the volatility of exchange rate, increases the risk premia but only by creating exchange rate predictability, and does not affect the exchange rate cyclicality. (JEL E32, F31, F44, G15)

The Exchange Rate Volatility in Indonesia and Policy Response

International Conference on Eurasian Economies 2014 ◽

10.36880/c05.00886 ◽

2014 ◽

Author(s):

Ferry Syarifuddin

Keyword(s):

Exchange Rate ◽

Central Bank ◽

Exchange Rates ◽

Interest Rates ◽

Foreign Exchange ◽

Commodity Prices ◽

Policy Response ◽

Long Run ◽

High fluctuation of exchange rate in short horizon is obviously making economic activity more risky as uncertainty rises. Moreover, volatile exchange rates also make commodity prices, interest rates and a host of other variables more volatile as well. Although changes in long-run exchange rates tend to undergo relatively gradual shifts, in the shorter horizon, the exchange rate might be very volatile. Then there should be a systematic and measured policy to mitigate the foreign exchange fluctuations and to minimize the fluctuations as well as to drive it to its fundamental value. In this part, USD/IDR volatility is investigated using GARCH approach. The results reveal that, USD/IDR volatility in Indonesia is persistent. On the other hand, the following studies also present the outcomes of effectiveness of policy response by the Central Bank. Foreign-exchange sale interventions by the Central Bank lead conditional volatility of the USD/IDR to decrease slightly.

Exchange Rate Volatility in Emerging Markets:The Chilean Case

Revista Latinoamericana de Desarrollo Económico ◽

10.35319/lajed.20078191 ◽

2007 ◽

pp. 87-100

Author(s):

Juan R. Castro

Keyword(s):

Exchange Rate ◽

Exchange Rate Regime ◽

External Debt ◽

Arch Model ◽

Macroeconomic Shocks ◽

Domestic Debt ◽

Domestic Credit ◽

The Face ◽

The document conducts an empirical investigation on the volatility of the Chilean exchange rate regime, using a model of Objective Zones. Through the use of the ARCH model, the document tests the volatility of the exchange rate in the presence of different levels of international reserves and other macroeconomic shocks. The results show that domestic credit, domestic debt and external debt have the greatest impact on the volatility of the variables studied, especially when compared with other fundamental variables. The variance of the exchange rate is heterosedastic but it is not persistent, which implies that the exchange rate is stable, probably when it oscillates between two bands. The volatility of the exchange rate fluctuates to a greater extent in the face of changes in internal and external debt, than with the other variables used.

Impact of the Exchange Rate Volatility on the Romanian Exports to the Euro Area

SSRN Electronic Journal ◽

10.2139/ssrn.2185892 ◽

2009 ◽

Author(s):

Ramona Dumitriu ◽

Razvan Stefanescu ◽

Costel Nistor

Keyword(s):

Exchange Rate ◽

Euro Area ◽

What is the exchange rate volatility response to COVID-19 and government interventions?

Economic Analysis and Policy ◽

10.1016/j.eap.2021.01.018 ◽

2021 ◽

Vol 69 ◽

pp. 705-719

Author(s):

Gen-Fu Feng ◽

Hao-Chang Yang ◽

Qiang Gong ◽

Chun-Ping Chang

Keyword(s):

Exchange Rate ◽

Government Interventions ◽

Exchange Rate Volatility and Domestic Consumption: A Comparative Study of Developed, Developing and Emerging Economies

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v9i3.15248 ◽

2019 ◽

Vol 9 (3) ◽

pp. 164

Author(s):

Muhammad Zubair Chishti ◽

Hafiz Syed Muhammad Azeem ◽

Farrukh Mahmood ◽

Adeel Ahmed Sheikh

Keyword(s):

Exchange Rate ◽

Panel Data ◽

Developing Economies ◽

Domestic Consumption ◽

Aggregate Consumption ◽

Developed Economies ◽

Panel Data Estimation ◽

The Exchange Rate ◽

Data Estimation

The current study endeavors to explore the effects of oscillations in the exchange rate on the household aggregate consumption of developed, emerging, and developing economies, employing the panel data from 1995 to 2017. To select an appropriate panel data estimation technique, we apply Brush-Pagan & Hausman Tests for each set of chosen economies. Further, our study deduces that, in the case of developed economies, the oscillations in the exchange rate, significantly, affect the domestic consumption, supporting Alexander’s (1952) conjecture. However, in the case of emerging and developing economies, aggregate consumption does not respond to the exchange rate volatility.

Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?

The American Economic Review ◽

10.1257/aer.96.3.552 ◽

2006 ◽

Vol 96 (3) ◽

pp. 552-576 ◽

Cited By ~ 234

Author(s):

Philippe Bacchetta ◽

Eric van Wincoop

Keyword(s):

Exchange Rate ◽

Empirical Evidence ◽

Rational Expectations ◽

Order Flow ◽

Macroeconomic Variables ◽

Symmetric Information ◽

Macroeconomic Fundamentals ◽

The Exchange Rate ◽

Exchange Rate Changes

Empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables. We introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts. Consistent with the evidence, the model implies that (a) observed fundamentals account for little of exchange rate volatility in the short to medium run, (b) over long horizons, the exchange rate is closely related to observed fundamentals, (c) exchange rate changes are a weak predictor of future fundamentals, and (d) the exchange rate is closely related to order flow.