Reference Currency Research Articles

Does the Interest Parity Puzzle Hold for Central and Eastern European Economies?

AbstractThis paper examines the uncovered interest parity puzzle in Central and Eastern European countries. Apart from investigating baseline UIP regressions, we check for structural breaks in this relationship, scrutinize deviations from the UIP, and employ different estimation methods and models augmented with various risk measures. Moreover, we offer several extensions to the common UIP testing that account for foreign-exchange interventions, the implied volatility of exchange rates, and the limited availability of data on direct measures of market expectations. The study shows that the choice of the reference currency matters for the outcome of the interest parity tests in the CEE economies. In particular, we demonstrate that inconsistencies between the results of the UIP tests vis-à-vis the euro and the US dollar that appear in CEE economies may be accounted for by the movements of the euro-dollar risk premium. This regularity has not been documented in previous studies. Additionally, we show that (a) the FX interventions in Czechia distorted the UIP, (b) the directly measured exchange rate expectations (granular survey data) in Poland do not seem to be informed by the UIP relationship, (c) the limited resilience of CEE economies to rare disasters may plausibly explain deviations from the UIP.

Rethinking Exchange Rate Regimes

This paper employs an updated algorithm and database for classifying exchange rate and anchor currency choice, to explore the evolution of the global exchange rate system, including parallel rates, capital controls and reserves. In line with a large recent literature, we find that the dollar has become ever-more central as the de facto anchor or reference currencies for much of the world. Our discussion encompasses the history of anchor currency choice, methods for classifying exchange rate regimes, a detailed discussion of the evolution of regimes, the growing substitution of reserves for capital controls as a tool for exchange rate stabilization, the modern Triffin dilemma, and the surprising recent trend decline in volatility of exchange rates at the core of the system. It concludes with issues surrounding the rise of China.

Addressing Nursing Scholarship: A Framework for Currency and Number of References.

Timeliness and number of references in written work is often a topic of controversy. Decisions about choice of references become complex when there is little recent published information or a great deal of important historical work on a topic. The study aim was to develop a framework to guide authors to determine the number and currency of references to support their writing. This study used a descriptive design with three steps: review of journal author information for guidance about reference currency (n = 247); correspondence with journal editors (n = 27); and a survey of nurse educators (n = 44) regarding currency and number of references in written assignments. Findings affirmed that recent literature is vital for nursing scholarship. Numerical guidelines offered were not based on identifiable consensus or rationale. Historical perspectives published over 5 or 10 years earlier are valued, even sometimes required. For a clinical paper, citation of the most current literature is viewed by editors and educators as essential, and may suffice. Based on the findings of this study and our search of the literature, we developed three decision making algorithms for searching the literature and selecting references by currency and number.

Investing in Fine Wine from the Perspectives of Diversification and Costs

This paper examines the meaningfulness of fine wine as an alternative investment, with particular focus on the costs of investing in fine wine. Is fine wine suitable for further diversifying and thus improving the risk-return profile of portfolios invested in global equities and bonds? This analysis takes place in an initial stage on an index basis and in a second stage on the basis of real investment opportunities. The reference currencies are the US dollar and the euro. In order to observe stock indexes, the MSCI World Index is used, and for bonds the JPM World Government-Bond Index is deployed. Regarding the data for investment in fine wine, the main focus is on the Liv-ex-50 Index. The time period is defined by the availability of the data. For the observation of indices, the period is from the beginning of 2004 to May 2018. For observation on the basis of a real investment the period is from March 2010 to May 2018. In the case of the real investment, index funds are used for the data analysis of equities and bonds. As there is no index fund for fine wine, the Liv-ex-50 index is used including all of the costs of a real investment. Various portfolio compositions are used for the periods indicated. On the one hand, a portfolio of 50% equities and 50% bonds is compared to a portfolio of 45% equities, 45% bonds and 10% fine wine. On the other hand, a portfolio of 25% equities and 75% bonds is compared to a portfolio of 20% equities, 70% bonds and 10% fine wine. As benchmarks, the annualised return, the standard deviation and the Sharpe ratio of the respective portfolios are calculated. The results for the periods indicated are sobering. The inclusion of fine wine leads - at an index level - to only a slight improvement of the annualised return, but to a marked increase in risk. When considering the real investment, the considerable costs of an investment in fine wine come to bear. The annualised return is lower and at the same time the risk is higher than that of portfolios which do not include fine wine. It is only when the index is viewed in euros that a slight improvement of the Sharpe ratio in one portfolio can be recorded. When costs are considered, the inclusion of fine wine leads to a worsening of the Sharpe ratio in all cases. This results is a significantly more critical verdict on this diversification opportunity than was noted in the previous studies by Masset and Weisskopf (2010), Masset and Henderson (2010), Bouri (2014), Bouri et al. (2016) and Aytac et al. (2016). By contrast, our results confirm the studies which point out the high costs of investment in fine wine and which reach largely negative findings when analysing real investments in wine investment funds (Burton and Jacobsen, 2001, Masset and Weisskopf, 2015).

On the cross-sectional relation between exchange rates and future fundamentals

Using a cross-sectional perspective, we investigate the implications of the present-value model of exchange rates for a sample of 64 countries during 1971–2015, excluding periods of pegged exchange rates. Our paper uses all bilateral exchange rate pairs instead of choosing a reference currency and extends the list of fundamentals that have been examined in the previous literature by using the variables present in the behavioral equilibrium exchange rate (BEER) model. We document that exchange rates are strongly connected to future fundamentals using forecast horizons from one month to 10 years. Our findings highlight that unlike for time-series and panel data, the evidence against the “exchange rate disconnect puzzle” is more robust using a cross-sectional perspective. Given the relevance of fundamental factors in determining exchange rates dynamics we examine whether they are useful in constructing profitable investment strategies. Except for inflation, we find that a significant relation between exchange rates and a fundamental does not lead necessarily to a profitable investment strategy. Finally, we document that using the cross-rates of exchange rates leads to a significant improvement in the profitability of the carry trade strategy.

Diversifying reference currency basket and decreasing degree of flexibility in exchange policy of China

Diversifying reference currency basket and decreasing degree of flexibility in exchange policy of China

Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?*

Abstract This article provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946–2016. We find that the often cited post–Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Even if central bankers’ communications jargon has evolved considerably in recent decades, it is apparent that many still place a large implicit weight on the exchange rate. The U.S. dollar scores as the world's dominant anchor currency by a very large margin. By some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled. We argue that in addition to the usual safe assets story, the record accumulation of reserves since 2002 may also have to do with many countries’ desire to stabilize exchange rates in an environment of markedly reduced exchange rate restrictions or, more broadly, capital controls: an important amendment to the conventional portrayal of the macroeconomic trilemma.

Optimal monetary policy in a model of vertical production and trade with reference currency

Abstract This paper examines optimal monetary policy rules in a model of vertical production and trade with reference currency. As evidenced by empirical findings, we assume that final-goods prices are sticky, but intermediate-goods prices are flexible. We find that even if intermediate-goods prices are flexible, monetary authorities need to respond to the shocks at the stage of intermediate-goods production. We also find that, when a shock occurs at the stage of final-goods production, monetary responses are independent of the expenditure share of final-goods producers on intermediate goods. For the first time in the literature, our model gives a condition under which both countries are willing to participate in monetary cooperation. Thus the gains from cooperation are real. In addition, we compare the volatility of the nominal exchange rate in Nash case with that in cooperative case, and compare the volatility of the nominal exchange rate in our model with that in a model without vertical production and trade as well. We also extend the model to consider a case of dual price stickiness. We find that the change in solution methods completely alters the conclusions of the model.

Purchasing power parity in ASEAN+3: an application of panel unit root tests

Abstract The paper assesses the existence of purchasing power parity (PPP) in ASEAN+3 economies taking into account EUR and USD as reference currencies. The research refers to the period from January 2000 to June 2017 and there are three points of view: we tested the period as a whole and then the pre-crisis period and the postcrisis period regarding the structural break due to the economic crisis. The evaluated economies include Brunei, Cambodia, China, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. A range of panel unit root tests are applied, covering the Levin, Lin and Chu test, the Breitung test, the Im, Pesaran and Shin test, the ADF-Fisher test and the PP-Fisher test. In cases where the unit root is rejected, the validity of PPP is confirmed. However, our results are ambiguous and depend on the selection of the base currency, the time period observed and on the choice of the methodology.

Book prices and monetary issues in Renaissance Europe

The difficulties associated with the creation of a large database of book prices include giving effective answers to questions such as how prices were formed during the various steps of the production process (sedimentation of production costs, costs related to the sale) or what the nature of the assigned value is (estimated in the case of used books, or of stock inventories, or the result of special conditions offered to specific customers, etc.). But first it is necessary to reflect on the interpretation given to the figures provided by the heterogeneous documentation which supports the creation of such a database. The many reference currencies in which these prices are expressed, depending on the monetary area of action of the economic operators (printers, booksellers, customers) are likely to confuse and mislead if their exact meaning is not clearly understood. This problem becomes even more urgent when, for example, the primary sources are the private notes of a collector who recorded how much he had paid for a book, or when two different currencies in place or in time have the same name. This aspect is also crucial in comparing different places and markets. Was the price expressed in money of account or in coined money? In domestic or foreign currency? Is it possible to relate two prices expressed in different currencies? The purpose of this paper is therefore to explore in greater depth some of the economic-monetary aspects of Renaissance Europe in order to help clarify any doubts or misreadings by building a reliable picture of the various types of currency used in Europe between the sixteenth and seventeenth centuries. This is an essential step to subsequently address the possibility of comparing prices expressed in different currencies as they emerged on different markets.

Bitcoin Market Volatility Analysis Using Grand Canonical Minority Game

In this paper we propose to use the Grand Canonical Minority Game (GCMG, a highly simplified financial market model) as a model of bitcoin market to show how the lack of an income for “miners”, similar to yield earned by bond holders, could be a structural reason for high volatility of bitcoin price in a reference currency. Coherently with present analysis, the introduction of future contracts on bitcoin would have the effect of reducing the overall market volatility.

Precise Zoological Information: The Concilium Bibliographicum, 1895–1940

EDITOR'S SUMMARYCognizant of the benefits and challenges of deep bibliographical searching for zoological resources, Herbert Haviland Field, an American zoologist, established the Concilium Bibliographicum in Zurich, Switzerland, in 1895. The Concilium provided bibliographic data on articles from over 2,000 journals in 20 languages and developed the zoology section of the Universal Decimal Classification (UDC) system, a new system in 1895 that improved search through flexible ordering of topical facets. The institute published annual indexes of zoological literature that could be tailored for specific interests; it later introduced card files for new zoological species and other services. But the Concilium faced insurmountable challenges. Poor funding, international hostilities leading to World War I and Field's death in 1921 handicapped daily operations, affecting the Concilium's language use policy, currency and comprehensiveness of references and staffing to maintain the index. An admirable effort that would have been well suited to modern digital solutions, the Concilium was suspended during the war and ceased operations in 1940.

Jakarta Interbank Spot Dollar Rate (JISDOR) as The Reference Rate: Is It Effective?

This study analyze the influence of non-deliverable forward (NDF) and the spot rate of USD/IDR against Bank Indonesia reference rate, Jakarta Interbank Spot Dollar Rate (JISDOR). NDF which came earlier than JISDOR is used by the market participant as the reference rate. The simple method of NDF determination had a great impact on the volatility of the rupiah currency, pushing the Bank Indonesia to issue its own reference currency. JISDOR is an indication of the rates issued by Bank Indonesia as the reference rate for the foreign exchange market in domestic and overseas. The method of creating the reference rate is by weighting the average rate of real transactions through a monitoring system which is managed by the central bank. However, the question arises: what should be done by the monetary authority when there is a party outside the jurisdiction issued the NDF rate as a benchmark that may affect the domestic exchange rate of rupiah in accordance with the desired agenda of the party. We use OLS and ARCH/GARCH to see if independent variables have an influence on dependent variable. Granger Causality test is also used to observe whether there are any relations among the variables.

ANALISIS KELAYAKAN DOLAR AMERIKA, EURO, DAN DINAR EMAS DALAM KONVERSI DOLAR AMERIKA SEBAGAI ALAT LINDUNG NILAI DENGAN EMAS SEBAGAI ALAT UKUR DALAM LAPORAN KEUANGAN

For this study was to analyze the potential of the Gold Dinar as a hedging tool replaces the U.S. Dollar. U.S. Dollar in recent year experienced extreme exchange rate movements so that researchers analyzed the stability of the current compared to Euro that threatening position U.S. Dollar as the worlds major currencies. Stable currency has the accuracy and reliability in an accounting information to make decisions of an organization or company. The data used in this study is secondary data by type of time series. Monthly data from 2003 antil 2012. To determine the stability of each currency, the data obtained should be free from containt of the unit root, has a normal distributed, and constant. The volatility calculation of 0.0408792 (Gold Dinar), 0.0408790 (U.S. Dollar), and 0.040540 (Euro). Volatility is a statiscal measure of the diversion returns for a given security. From the research that has been done, calculation of the Euro states have a low risk of change in value and have a steady rate. With that result, Euro can be reference currency in financial reporting.Keywords: Hedging, U.S. Dollar, Euro, Gold Dinar, Gold, Accounting Information, Financial Reporting.

Monetary Developments and Transmission in the Euro Area

Since the launch of the European Economic and Monetary Union (EMU) in January 1999 till today in 2015, the Euro has ascended to become the second largest reference currency in the world. With about €1.6 trillion of currency in circulation, it is at present even positioned above the US dollar with €1.3 trillion. The Eurosystem now comprises 19 EU countries with about 340 million people and inherits an outstanding role for the economy of the EMU, world trade, and international finance. Despite its importance, a recent independent empirical review that conclusively analyzes all key factors and efficiencies remains much obsolete. Thus, this research and review set‘s out to empirically-theoretically compile the last 16 years of the EMU with a focus on monetary developments, functioning of monetary transmission channels (MTCs) and mechanisms, as well as the performance of the Eurosystem and its ECB governed monetary policies (MP). For the first time, it reviews a complete set of 16 MTCs and systematically evaluates the functioning of the Eurosystem and its role for the real economy and its people. It finds a high loss of efficiency in all MTCs related to fractional reserve banking, excessive EU indebtedness, or legal frameworks such as MFI, financial, or equity law. Scientifically, based on all data and results, there is no way to reach a different conclusion and reminder that stresses the need, exigency and must to replace an old-fashioned reserve banking system by digital full-reserve banking via monetary reform at the earliest feasible date possible.

Regional integration of the East Asian stock markets: An empirical assessment

The aim of this paper is to study the dynamics of regional financial integration in East Asia over the 1990:01–2012:08 period. To this end, we use the international capital asset pricing model (ICAPM) to assess the evolution of financial market integration through time and evaluate their risk premia. We also construct an Asian currency basket in order to obtain a reference currency in this area. Our empirical analysis is based on the multivariate GARCH-DCC approach with time-varying correlations. Our results show that the East Asian stock markets were partially segmented (except for Japan) within their region until approximately 2008. However, the last years are characterized by an upward trend in the regional integration of stock markets. Our findings also show that the risk premium related to regional stock markets is significant for all countries.

Optimal Monetary Policy Under a Global Dollar Standard: The Effect of Vertical Trade and Production

This paper revisits Devereux et al. (J Int Econ 71:113–132 2007) which studies trade and macroeconomic behaviour in a two-country model under a reference currency such as the dollar in US-China trade. The home country (e.g. the US) sets its export prices in dollars and so does the foreign country (e.g. China), so that the US has Local Currency Pricing (LCP) of its imports while China has Producer Currency Pricing (PCP) of its imports. We crucially modify their model by adding the large and by now well-known trade in intermediate goods. The addition implies that there is now exchange-rate pass-through via intermediate-goods markets into US import prices which thereby become to some degree PCP like China; accordingly monetary expansion in the US now produces not merely an expansion effect in both countries but also an expenditure-switching effect towards itself by lowering its exchange rate and so raising the relative US consumer prices of Chinese goods. This modification has implications for the effects of monetary policy in both countries.

Is the Renminbi Asia's Dominant Reference Currency? A Reconsideration

Recent empirical studies show that the Chinese currency is either becoming or has become a dominant reference currency in Asia. However, the high correlation between the US dollar and movements hampers the identification of their individual effects on the Asian currencies. In particular, the application of Frankel–Wei regressions to determine the weights of the US dollar and the (unorthogonalized) in the implicit currency baskets could suffer from endogeneity problems that produce an upward bias in renminbi's estimated weight. This paper reviews the evidence by applying country-specific Vector Autoregression (VAR) models to daily exchange rate data from nine Asian economies namely, Hong Kong, Indonesia, India, Korea, Malaysia, the Philippines, Singapore, Thailand, and Taiwan. The VAR methodology allows for mutual interaction of the exchange rate variables, thereby circumventing the simultaneity bias problem. To overcome the identification problem, we study the relationship between Asian currencies and the US dollar (renminbi) in terms of their bilateral rates against the (US dollar). All bilateral exchange rates are standardized so that the impulse responses generated are in terms of the number of standard deviations of each series, hence facilitating comparisons across the two sets of models. Generalized impulse response analysis reveals that the US dollar has a significant influence on Asian currencies before the global financial crisis but its impact has weakened post-crisis. By contrast, there is clear evidence that the role of the in Asian exchange rate determination has increased after the global financial crisis, exerting either greater or a similar impact as the US dollar. Nonetheless, our findings do not support the claim that a de facto renminbi bloc has emerged in the region.

Exchange rate EUR/USD risk in investments denominated in USD in the period of the financial and economic crisis

The paper discusses the evaluation of the influence of the EUR/USD exchange rate on the yield-rate of dollar share investments from the viewpoint of the Euro investor in varying investment periods with emphasis on the period of the financial and subsequent economic crisis targeted mainly in the period 2008–2010.The outputs of the paper are realized for the following investment periods: one-year, three-year, five-year, seven-year, ten-year and fifteen-year. The supplementary investment period is the twenty-year period, which due to the small number of observations is characterized by low informative value. The share investments denominated in USD are represented by investments in the S&P 500 Total Net Return that also considers reinvestment in the period 1988–2010.The basic methodical tool of the paper is quantification of the factors that influence the yield-rate of the foreign currency investments in the reference currency of the investor. Quantification mainly attaches to the ratio of the influence of the EUR/USD exchange rate on the yield-rate of the dollar share investments from the viewpoint of the euro investor.

The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?

A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging-market economies, we show that in the last three years, the renminbi (RMB) has increasingly become a reference currency, which we define as one that exhibits a high degree of co-movement with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the US dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the co-movement coefficient relative to the RMB being about 60 percent greater than that for the dollar. We find that co-movements with a reference currency, especially for the RMB, are associated with trade integration. We draw some lessons for the prospects for the RMB bloc to move beyond Asia based on a comparison of the RMB’s situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s, but complementary reforms of the financial and external sectors could considerably expedite the process.