Google Search in Exchange Rate Models: Hype or Hope?

This paper studies the power of online search intensity metrics, measured by Google, for examining and forecasting exchange rates. We use panel data consisting of quarterly time series from 2004 to 2018 and ten international countries with the highest currency trading volume. Newly, we include various Google search intensity metrics to our panel data. We find that online search improves the overall econometric models and fits. First, four out of ten search variables are robustly significant at one percent and enhance the macroeconomic exchange rate models. Second, country regressions corroborate the panel results, yet the predictive power of search intensity with regard to exchange rates vary by country. Third, we find higher prediction performance for our exchange rate models with search intensity, particularly in regard to the direction of the exchange rate. Overall, our approach reveals a value-added of search intensity in exchange rate models.

HDXmodeller: an online webserver for high-resolution HDX-MS with auto-validation

The extent to which proteins are protected from hydrogen deuterium exchange (HDX) provides valuable insight into their folding, dynamics and interactions. Characterised by mass spectrometry (MS), HDX benefits from negligible mass restrictions and exceptional throughput and sensitivity but at the expense of resolution. Exchange mechanisms which naturally transpire for individual residues cannot be accurately located or understood because amino acids are characterised in differently sized groups depending on the extent of proteolytic digestion. Here we report HDXmodeller, the world’s first online webserver for high-resolution HDX-MS. HDXmodeller accepts low-resolution HDX-MS input data and returns high-resolution exchange rates quantified for each residue. Crucially, HDXmodeller also returns a set of unique statistics that can correctly validate exchange rate models to an accuracy of 99%. Remarkably, these statistics are derived without any prior knowledge of the individual exchange rates and facilitate unparallel user confidence and the capacity to evaluate different data optimisation strategies.

The long-run effects of geopolitical risk on foreign exchange markets: evidence from some ASEAN countries

PurposeThe purpose of this paper is to analyse the long-run relationship between geopolitical risk and exchange rates in four ASEAN countries.Design/methodology/approachWe augment theoretical nominal exchange rate models available in the literature with the geopolitical risk index developed by Caldara and Iacoviello (2019), and then estimate these models using the ARDL approach to Cointegration.FindingsOur analysis uncovers evidence of Cointegration in the exchange rate models when the MYR-USD, IDR-USD, THB-USD and PHP-USD exchange rates are used as dependent variable. Next, geopolitical risk is a significant long-run driver for these exchange rates. Third, in all countries higher geopolitical risk leads to a depreciation of domestic currency.Research limitations/implicationsThere are implications for entrepreneurs, central banks, portfolio managers and arbitrageurs who actively trade in financial markets. Financial market players can benefit from a better understanding of how geopolitical events affect the portfolio of financial assets across various countries, while entrepreneurs can work out hedging strategies.Originality/valueThis is a contribution to the study of interlinkages between political risk and foreign exchange markets. It is the first study to adopt the geopolitical risk index of Caldara and Iacoviello (2019) to the study the foreign exchange markets of ASEAN countries.

Testing monetary exchange rate models with the Westerlund panel cointegration test

Time series testing of long-run monetary models of exchange rate determination in most cases fails to support the conjectures of the theory. The empirical literature increasingly uses the panel technique when testing monetary exchange rate models because the power of the panel unit root and panel cointegration tests seems higher than the pure time series tests. In this paper we examine the validity of the monetary exchange rate models over the period 1996Q1-2011Q4 for US dollar exchange rates of 15 OECD countries using Westerlund’s 2007 panel cointegration tests. We found moderate empirical support for monetary exchange rate models.

Exchange rate modelling in the development community using the ARDL cointegration approach: The case of emerging markets

Despite rising interest in African economies, there is little prior research on the determinants of exchange rate movements in the region. This paper examines the monthly exchange rates of the country members of the Southern African Development Community (SADC) from 1990 to 2010 inclusive. Long-run equilibrium exchange rate models are established, exchange rate determinants are identified, and ex-post forecasts are generated for a period of 18 months (Sekantsi, 2011). The autoregressive distributed lag (ARDL) cointegration model is used in this paper, given its statistical advantages over commonly, applied cointegration techniques. Findings show that the ARDL method generates accurate forecasts for eight out of 11 sampled exchange rates. In keeping with earlier literature (e.g., Redda & Muzindusti, 2017; Zerihun & Breitenbach, 2017; etc.), findings suggest that the chances of SADC member countries fulfilling the requirements of a currency union are quite low. This paper marks one of the first attempts in the literature to forecast exchange rates in SADC using the ARDL approach (Pesaran & Shin, 1995). The results would be of interest to policy-makers, researchers and investors.

Microstructure of Foreign Exchange Markets

An overview of research on the microstructure of foreign exchange (FX) markets is presented. We begin by summarizing the institutional features of FX trading and describe how they have evolved since the 1980s. We then explain how these features are represented in microstructure models of FX trading. Next, we describe the links between microstructure and traditional macro exchange-rate models and summarize how these links have been explored in recent empirical research. Finally, we provide a microstructure perspective on two recent areas of interest in exchange-rate economics: the behavior of returns on currency portfolios, and questions of competition and regulation.

Prognostications With Applications to the British Pound

This paper scrutinizes several exchange rate models, considers the effectiveness of their predictive performance after applying both parametric and nonparametric techniques to them, and chooses the forecasting predictor with the smallest root mean square forecast error (RMSE). Equation (34) displays empirical evidence consistent with a better example of an exchange rate model, although none of the evidence gives us a completely satisfactory forecast. In the end, the models’ error correction versions will be fit so that plausible long-run elasticities can be imposed on each model’s fundamental variables.