Exchange Rate Correlations Research Articles

Nontraded Goods, Market Segmentation, and Exchange Rates

Empirical evidence suggests that movements in international relative prices (such as the real exchange rate) are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind international relative price movements. In this paper we show that nontraded goods have important implications for exchange rate behavior, even though fluctuations in the relative price of nontraded goods account for a relatively small fraction of real exchange rate movements. In our quantitative study nontraded goods magnify the volatility of exchange rates when compared to the model without nontraded goods. Cross-country correlations and the correlation of exchange rates with other macro variables are closer in line with the data. In addition, contrary to a large literature, standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.

Central Bank Forex Interventions Assessed Using Realized Moments

This paper studies and assesses the impact of G3 Central Bank interventions on the DEM/USD exchange rate properties using daily realized moments of exchange rate returns (obtained from intraday data) for the period 1989-2001. Event studies in terms of the realized moments for the intervention day, the days preceding and following the intervention day illustrate the shape of this impact. Rolling regressions results for an ARFIMA model for realized moments are used to measure the intervention impact and characterize its significance. The analysis confirms previous findings of an increase of volatility after a coordinated Central Bank intervention. It highlights new findings on the timing and the persistence of coordinated interventions on exchange rate volatility, on important volatility spillovers, on the impact on exchange rate covariances and correlations and on skewness coefficients.

From the EMS to EMU: Has There Been Any Change in the Behaviour of Exchange Rate Correlation?

It has been eight years since the Economic and Monetary Union (EMU) displaced the European Monetary System (EMS), with the euro becoming the legal successor to the European Currency Unit (ECU). Studies on macroeconomic, international economic and microeconomic issues surrounding this important international monetary development have flourished in the economics and finance literature. There is, however, one question that has received no attention: Has the move to EMU changed the behaviour of exchange rate correlations between the euro (ECU) and other currencies? This question has to do with the debates on the success and prospects of the euro, and so deserves exploration in this short paper. Specifically, our study is motivated by the following considerations.

NMR resonance assignments for sparsely 15N labeled proteins

For larger proteins, and proteins not amenable to expression in bacterial hosts, it is difficult to deduce structures using NMR methods based on uniform (13)C, (15)N isotopic labeling and observation of just nuclear Overhauser effects (NOEs). In these cases, sparse labeling with selected (15)N enriched amino acids and extraction of a wider variety of backbone-centered structural constraints is providing an alternate approach. A limitation, however, is the absence of resonance assignment strategies that work without uniform (15)N, (13)C labeling or preparation of numerous samples labeled with pairs of isotopically labeled amino acids. In this paper an approach applicable to a single sample prepared with sparse (15)N labeling in selected amino acids is presented. It relies on correlation of amide proton exchange rates, measured from data on the intact protein and on digested and sequenced peptides. Application is illustrated using the carbohydrate binding protein, Galectin-3. Limitations and future applications are discussed.

Asymmetric Dynamics in Exchange Rate Correlations: Price Stability Or Export Competitiveness?

Introducing an asymmetric DCC model for examining exchange rate correlations, and applying it to the Australian and Kiwi dollars, we show that the two currencies are more correlated during appreciations than during depreciations, consistent with the policy objective of Reserve Bank of New Zealand.

Central Bank Interventions and Implied Exchange Rate Correlations

Central Bank Interventions and Implied Exchange Rate Correlations

Phase correlation of foreign exchange time series

Correlation of foreign exchange rates in currency markets is investigated based on the empirical data of USD/DEM and USD/JPY exchange rates for a period from February 1 1986 to December 31 1996. The return of exchange time series is first decomposed into a number of intrinsic mode functions (IMFs) by the empirical mode decomposition method. The instantaneous phases of the resultant IMFs calculated by the Hilbert transform are then used to characterize the behaviors of pricing transmissions, and the correlation is probed by measuring the phase differences between two IMFs in the same order. From the distribution of phase differences, our results show explicitly that the correlations are stronger in daily time scale than in longer time scales. The demonstration for the correlations in periods of 1986–1989 and 1990–1993 indicates two exchange rates in the former period were more correlated than in the latter period. The result is consistent with the observations from the cross-correlation calculation.

The Lucas Critique and the Stability of Empirical Models

Empirical evidence suggests that movements in international relative prices (such as the real exchange rate) are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind international relative price movements. In this paper we show that nontraded goods have important implications for exchange rate behavior, even though fluctuations in the relative price of nontraded goods account for a relatively small fraction of real exchange rate movements. In our quantitative study nontraded goods magnify the volatility of exchange rates when compared to the model without nontraded goods. Cross-country correlations and the correlation of exchange rates with other macro variables are closer in line with the data. In addition, contrary to a large literature,standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.

Central Bank Interventions and Implied Exchange Rate Correlations

This paper examines the effects of the foreign exchange market interventions by the Bank of Japan on the ex ante correlations between the JPY/USD, EUR/USD, and GBP/USD exchange rates. The correlation estimates used in the analysis are derived from the market prices of OTC currency options. The results show that central bank interventions significantly affect the market expectations about future exchange rate co-movements. In particular, we find that interventions tend to temporarily increase the ex ante correlations among the major exchange rates. However, our results also suggest that intervention episodes are associated with lower-than-average levels of exchange rate correlations.

Performance evaluation of neural network architectures: the case of predicting foreign exchange correlations

In the last decade, neural networks have emerged from an esoteric instrument in academic research to a rather common tool assisting auditors, investors, portfolio managers and investment advisors in making critical financial decisions. It is apparent that a better understanding of the network's performance and limitations would help both researchers and practitioners in analysing real-world problems. Unlike many existing studies which focus on a single type of network architecture, this study evaluates and compares the performance of models based on two competing neural network architectures, the multi-layered feedforward neural network (MLFN) and general regression neural network (GRNN). Our empirical evaluation measures the network models' strength on the prediction of currency exchange correlation with respect to a variety of statistical tests including RMSE, MAE, U statistic, Theil's decomposition test, Henriksson–Merton market timing test and Fair–Shiller informational content test. Results of experiments suggest that the selection of proper architectural design may contribute directly to the success in neural network forecasting. In addition, market timing tests indicate that both MLFN and GRNN models have economically significant values in predicting the exchange rate correlation. On the other hand, informational content tests discover that the neural network models based on different architectures capture useful information not found in each other and the information sets captured by the two network designs are independent of one another. An auxiliary experiment is developed and confirms the possible synergetic effect from combining forecasts made by the two different network architectures and from incorporating information from an implied correlation model into the neural network forecasts. Implied correlation and random walk models are also included in our empirical experiment for benchmark comparison. Copyright © 2005 John Wiley & Sons, Ltd.

Currency Unions, Options, and Foreign Direct Investment

A multinational deciding on where to locate a foreign production facility may not be indifferent to the choice of location. Numerous variables such as production costs, market access, and local tax treatments will influence the decision as to where the plant is located. Another key variable in this decision is uncertainty. Following the work of Dixit, a firm has an option to make a risky investment, and if this investment is at least partially irreversible, the option has some positive value. As the uncertainty in the investment project increases, so too does the value of the option. When comparing two investment projects that are identical in all respects except their underlying profit volatility, the one with the greater degree of uncertainty will require a higher trigger level of profits to be exercised. This paper examines the impact of uncertainty in exchange rates on a multinational.s decision to locate within or outside a currency union. The option values and trigger levels of investment within and outside the union are derived as a function of exchange rate variances and correlations, transport costs, and market size.

Conditional covariances and direct central bank interventions in the foreign exchange markets

In this paper, we investigate the effects of central bank interventions (CBIs) on the ex post correlation and covariance of exchange rates. Using a multivariate GARCH model with time-varying conditional covariances, we estimate the effects of CBIs on both the variances and covariance between the yen and the deutsche mark (the Euro) in terms of the US dollar. Our results suggest that coordinated CBIs not only tend to increase the volatility of exchange rates but also explain a significant amount of the covariance between the major currencies. We show that this result can be useful for short-run currency portfolio management.

Conditional Covariances and Direct Central Bank Interventions in the Foreign Exchange Markets

In this paper, I investigate the effects of central bank interventions (CBIs) on the ex post correlation and covariance of exchange rates. Using a multivariate GARCH model with time-varying conditional covariances, we estimate the effects of CBIs on both the variances and covariance between the yen and the deutsche mark (the Euro) in terms of the U.S. dollar. Our results suggest that coordinated CBIs not only tend to increase the volatility of exchange rates but also explain a significant amount of the covariance between the major currencies. We show that this result can be useful for short-run currency portfolio management.

The Distribution of Realized Exchange Rate Volatility

Using high-frequency data on deutschemark and yen returns against the dollar, we construct model-free estimates of daily exchange rate volatility and correlation that cover an entire decade. Our estimates, termed realized volatilities and correlations, are not only model-free, but also approximately free of measurement error under general conditions, which we discuss in detail. Hence, for practical purposes, we may treat the exchange rate volatilities and correlations as observed rather than latent. We do so, and we characterize their joint distribution, both unconditionally and conditionally. Noteworthy results include a simple normality-inducing volatility transformation, high contemporaneous correlation across volatilities, high correlation between correlation and volatilities, pronounced and persistent dynamics in volatilities and correlations, evidence of long-memory dynamics in volatilities and correlations, and remarkably precise scaling laws under temporal aggregation.

The Distribution of Realized Exchange Rate Volatility

Using high-frequency data on Deutschemark and Yen returns against the dollar, we construct model-free estimates of daily exchange rate volatility and correlation, covering an entire decade. Our estimates, termed realized volatilities and correlations, are not only model-free, but also approximately free of measurement error under general conditions, which we discuss in detail. Hence, for practical purposes, we may treat the exchange rate volatilities and correlations as observed rather than latent. We do so, and we characterize their joint distribution, both unconditionally and conditionally. Noteworthy results include a simple normality-inducing volatility transformation, high contemporaneous correlation across volatilities, high correlation between correlation and volatilities, pronounced and persistent dynamics in volatilities and correlations, evidence of long-memory dynamics in volatilities and correlations, and remarkably precise scaling laws under temporal aggregation.

Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate Garch Model

We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of the principal components construction to transform the condi- tional component moments back into those of the exchange rate changes themselves. The model is easy to estimate, as it requires only univariate GARCH estimations. Nevertheless, it outperforms the popular constant conditional correlations and factor GARCH models. We find that the ma- jor U.S. dollar exchange rates have become more loosely instead of closely tied since the eighties.

Determining Foreign Exchange Risk and Bank Capital Requirements

This paper examines three alternative measures of exchange rate risk that could be used to develop a risk-based capital requirement for banks with foreign-exchange exposure. One measure, the standard deviation of the portfolio, is constructed under the assumption that exchange rate changes are distributed normally. While this measure is widely used in a variety of financial applications, it is subject to the criticism that it fails to capture well the behavior of exchange rate changes in the tails of their density function. A second possible measure is developed that combines the standard deviation and a method used by the Bank of England to assess foreign exchange exposure. This measure fails to represent the tail behavior and correlation patterns of exchange rates. The third measure uses nonparametric methods to determine capital requirements. The third measure does not suffer from the deficiencies of the other two: it allows for a rich pattern of exchange rate correlations and for non-normal characteristics in the tails of the density function.Because of the generality of the nonparametric method, it is used to quantitatively assess the deficiencies of the other two measures. In a sample of simulated portfolios of marks, yen, and sterling, it is shown that the standard deviation measure is likely to yield capital requirements that are too small relative to the nonparametric measure. The second measure behaves on average like the standard deviation measure but the capital requirement is more erratic: it generates too much capital for some portfolios and too little capital for others in larger proportions than the standard deviation measure.

On the correlation of exchange rates and interest rates

This note shows that a negative correlation between the price of foreign currency and nominal interest rates in not necessarily an indication of movements in the real rate of interests. Such a correlation could be consistent with a monetarist model in which the real rate is constant.

The kinetics of hydrogen isotope exchange reactions. Part XV. Acid-catalysed tritiation of mesitylene and correlation of exchange rates with Hammett's acidity function

Download options Please wait... Article information DOI https://doi.org/10.1039/J29690000950 Article type Paper Download Citation J. Chem. Soc. B, 1969, 950-956 BibTex EndNote MEDLINE ProCite ReferenceManager RefWorks RIS Permissions Request permissions The kinetics of hydrogen isotope exchange reactions. Part XV. Acid-catalysed tritiation of mesitylene and correlation of exchange rates with Hammett's acidity function J. R. Adsetts and V. Gold, J. Chem. Soc. B, 1969, 950 DOI: 10.1039/J29690000950 To request permission to reproduce material from this article, please go to the Copyright Clearance Center request page. If you are an author contributing to an RSC publication, you do not need to request permission provided correct acknowledgement is given. If you are the author of this article, you do not need to request permission to reproduce figures and diagrams provided correct acknowledgement is given. If you want to reproduce the whole article in a third-party publication (excluding your thesis/dissertation for which permission is not required) please go to the Copyright Clearance Center request page. Read more about how to correctly acknowledge RSC content. Search articles by author J. R. Adsetts V. Gold

Pentacoordinated molecules. XII. Correlation of exchange rates for some Group V pentahalide molecules

Pentacoordinated molecules. XII. Correlation of exchange rates for some Group V pentahalide molecules