Changes In Exchange Rate Volatility Research Articles

THE ASYMMETRIC EFFECTS OF EXCHANGE RATE VOLATILITY ON INTERNATIONAL TRADE IN A TRANSITION ECONOMY: THE CASE OF VIETNAM

This study examines the asymmetric effects of Exchange Rate Volatility (ERV) on Vietnam’s international trade. Using time-series data fitted to the Nonlinear Autoregressive Distributed Lag (NARDL) model, we find that positive changes in ERV have a negative impact on the trade balance in the short-run. On the other hand,increases in ERV have a positive impact on the trade balance in the long-run. We also find that negative changes in ERV do not have any significant effect on the trade balance.

The Dynamic Relationship of China’s Financial Sub-Markets: From the Perspective of Risk and Stability

The development of financial technology has made financial sub-markets increasingly interconnected, and this interdependence magnifies the instability of financial markets and the possibility of risk. The literature documents the relation of financial sub-markets from time domain, but empirical evidence that effectively identify the patterns of co-movement of multiple financial sub-markets from frequency domain is lacking. This study assesses the dynamic relationship among interest rates, stock prices and exchange rates in China from January 2006 to December 2021 using the Wavelet model. Furthermore, we introduce the TVP-VAR-SV model to study whether the dynamic relationship has changed structurally under the impact of COVID-19. We find the following: 1) with the deepening of the financial market and the improvement of the informatization level, the frequency of risk transmission among financial sub-markets decreases, and the linkage relationship changes from frequent linkage in the medium term to relatively stable linkage relationship in the long term; 2) the relationship between the three variables in short-term fluctuations is more complex, while the relationship between financial variables in long-term fluctuations is more stable; 3) after the outbreak of COVID-19, the positive impact of interest rates and stock prices has brought about a larger range of changes in exchange rate volatility, with a longer impact period and a stronger linkage.

Impact of Exchange Rate Volatility on the US Exports: A New Evidence From Multiple Threshold Nonlinear ARDL Model

This study extends previous literature by examining the effect of extremely large to extremely small changes in the exchange rate volatility on the US exports to developing countries such as Brazil, India, Mexico, and South Africa. We use novel approach called multiple threshold nonlinear ARDL (MTNARDL) and compare its results with ARDL and nonlinear ARDL models. The ARDL model supports insignificant results, whereas standard nonlinear ARDL model indicates asymmetric effect of exchange rate volatility on the US exports to Mexico only. Finally, the MTNARLD model indicates that in the short run, the effect of extremely large changes in exchange rate volatility does not significantly differ from the effect of small changes in exchange rate volatility on the US exports to all sample countries. Whereas in the long run, the effect of extremely large changes in exchange rate volatility is significantly different from the effect of small changes in exchange rate volatility on the US exports to all sample countries. The findings of this novel methodology suggest different policies in the long run and short run.

Volatilidad estocástica del tipo de cambio, impacto y desequilibrios en la economía mexicana

In this paper an empirical analysis of the exchange rate of the dollar during the period 2000-2016 is made, the objective is to select a statistical model that accurately characterizes the impacts of the price variation in the Mexican economy. The time series methodology is applied to study the volatility of the currency and the results of the ARCH model (Engle, 1982) and GARCH (Bollerslev, 1986) are compared. It is concluded that the GARCH model represents more accurately the changes in exchange rate volatility and the results validate the hypothesis of high volatility caused by factors beyond the performance of the Mexican economy. A comparative analysis between the GARCH, EGARCH and PARCH models is identified as a future line of research to extend the work.

Exchange Rate Volatility and US Import Demand for Salmon

AbstractIn this article, a risk-augmented differential demand system is developed to test the effects of exchange rate volatility (ERV) on trade. Applying the model to data on US imports of salmon from Chile, Canada, Norway, the United Kingdom, and Rest of World (ROW), results indicate ERV reduces imports. The effect, however, is modest in that the ERV elasticities are only 15% as large as price elasticities. Overall, US imports of salmon are much more sensitive to changes in relative prices and income than to changes in ERV. Bias in the estimated price and expenditure elasticities associated with omitting the ERV variables from the model in some cases is non-trivial.

Exchange Rate Volatility and International Trade Flows in sub-Saharan Africa: Empirical Evidence

In this article, the authors examine the relationship between the volatility in exchange rates and the volume of international trade in sub-Saharan African countries. Using the gravity equation and annual data for the period 1998–2007, they find a statistically significant and negative correlation between the volatility in exchange rates and the volume of trade. The estimated elasticities show that the responsiveness of the flow of international trade to changes in exchange rate volatility is very small. This suggests that eliminating the volatility in the exchange rates will result in only small increments in the volume of trade. Accordingly, pursuing a policy of exchange rate stability would not be sufficient to significantly increase the volume of bilateral trade in the sub-Saharan African region.

Pricing currency options with support vector regression and stochastic volatility model with jumps

This paper presents an efficient currency option pricing model based on support vector regression (SVR). This model focuses on selection of input variables of SVR. We apply stochastic volatility model with jumps to SVR in order to account for sudden big changes in exchange rate volatility. We use forward exchange rate as the input variable of SVR, since forward exchange rate takes interest rates of a basket of currencies into account. Therefore, the inputs of SVR will include moneyness (spot rate/strike price), forward exchange rate, volatility of the spot rate, domestic risk-free simple interest rate, and the time to maturity. Extensive experimental studies demonstrate the ability of new model to improve forecast accuracy.

Volatility regime-switching in European exchange rates prior to monetary unification

Several theoretical models suggest that the mere announcement of entering a currency union in the future triggers instantaneous changes in exchange-rate volatility. First, this paper develops a Markov-switching framework by which, in fact, volatility regime-switching in foreign exchange rates can be detected for all currencies in the run-up to the European Monetary Union (EMU). Second, the paper attributes the currency-specific volatility regime-switches to decisive economic, institutional and political factors prior to EMU. All in all, the empirical results suggest that for future EMU accession countries volatility regime-switching models provide a useful tool for a broad range of financial applications (e.g. for the pricing of currency options or for the construction of EMU probability calculators).

European Financial Market Integration and German Cross Border Portfolio Flows

The paper analyzes the effect of European financial integration, especially of the EMU, on gross portfolio flows between Germany and 47 countries from 1987 to 2002. A gravity model of asset trade a la Martin and Rey (2004) is estimated. The following results are found: (1) There is substantially more portfolio trade between Germany and countries also participating in stage one and three of the EMU. More specifically: Since 2001 cross border portfolio flows between Germany and EMU countries are significantly larger compared to flows between Germany and Denmark, the UK, and Sweden which are part of the EU-15 but not of the Euro area. (2) Developments intertwined with the formation of the EMU such as changes in exchange rate volatility, financial market development and increased real economic integration among EMU countries are not able to account for this effect. (3) The EMU effect on gross portfolio flows is larger for transacting countries with more developed banking and equity markets and for country pairs with more correlated business cycles.

Financial market integration in Europe: on the effects of EMU on stock markets

AbstractThis paper analyses the integration process of European equity markets since the 1980s. Its central focus is on the role that EMU, and specifically, changes in exchange rate volatility, has played in this process of financial integration. Building on an uncovered interest rate parity condition to measure financial integration, a trivariate GARCH model with time‐varying coefficients yields three key results: first, European equity markets have become highly integrated only since 1996. Second, the Euro area market has gained considerably in importance in world financial markets and has taken over from the USA as the dominant market in Europe. Third, the integration of European equity markets is in large part explained by the drive towards EMU, and in particular the elimination of exchange rate volatility and uncertainty in the process of monetary unification. Copyright © 2002 John Wiley & Sons, Ltd.

Financial Market Integration in Europe: On the Effects of Emu on Stock Markets

This paper analyzes the integration process of European equity markets since the 1980s. Its central focus is on the role that EMU, and specifically, changes in exchange rate volatility, has played in this process of financial integration. Building on an uncovered interest rate parity condition to measure financial integration, a trivariate GARCH model with time-varying coefficients yields three key results: first, European equity markets have become highly integrated only since 1996. Second, the Euro area market has gained considerably in importance in world financial markets and has taken over from the US as the dominant market in Europe. And third, the integration of European equity markets is in large part explained by the drive towards EMU, and in particular the elimination of exchange rate volatility and uncertainty in the process of monetary unification.

Is the Integration of World Asset Markets Necessarily Beneficial in the Presence of Monetary Shocks?

This paper evaluates the consequences of the integration of international asset markets when goods markets are characterized by price rigidities. Using an open economy general equilibrium model with volatility in the money markets, we show that such an integration is not universally beneficial. The country with the more volatile shocks will benefit whereas the country where the volatility of shocks is moderate will suffer. The welfare effects reflect changes in the terms of trade that occur because forward looking price setters adjust to the changes in exchange rate volatility brought about by the integration of international asset markets.