intervention and sterilisation under floating exchange rates the uk 1973 1983 in this paper a small portfolio balance model in the spirit of obstfeld 1983 is estimated for the sterling pound us dollar exchange rate over the period 1973 quarter 2 to 1983 quarter 4 it is demonstrated inter alia that pure or sterilised foreign exchange market intervention can be effective even when agents form expectations rationally

relationships among exchange rates intervention and interest rates an empirical investigation abstract this study uses herefore unavailable daily data on official intervention to test the joint hypotheses of perfect asset substitutability and exchange market efficiency this joint hypothesis is generally soundly rejected for six exchange rates over various sample periods in contrast to evidence elsewhere from weekly or monthly data lagged intervention is a significant determinant of realized profits in about half the cases this evidence is consistent with existence of a portfolio balance channel at least in the short run other evidence indicates that coordinated intervention sometimes may have an impact significantly different from intervention by one central bank alone

identification of interest rates and international capital flows the conventional paradigm that capital movements respond to differences in interest rates between countries and simultaneously reduce interest rate differentials has been difficult to demonstrate empirically this paper argues that such a demonstrati on may be feasible if a simultaneous model is specified that describe s the dynamics of adjustment and if a data interval is chosen that re veals the dynamics examination of u s and canadian data from the 19 60s supports the argument with monthly observations that paradigm is strongly supported with quarterly observations capital flows and i nterest rates are not significantly related copyright 1988 by mit press

overwork and the slow convergence in the gender gap in wages despite rapid changes in women s educational attainment and continuous labor force experience convergence in the gender gap in wages slowed in the 1990s and stalled in the 2000s using cps data fr

variability in forecasts in a nonlinear model of the us beef sector 1987 variability in forecasts in a nonlinear model of the us beef sector applied economics vol 19 no 11 pp 1457 1470

fiscal policy and the exchange rate in the big seven abstract we isolate the aggregate demand effects of u s government spending from its asset supply effects working through increased deficits and examine the former with the help of a two country rational expectations model of the united states versus the rest of the world the simulation results suggest that even in the absence of asset supply effects the consequences of a government spending cut in the united states can be substantial a depreciation of the effective dollar rate of 4 percent and a fall in long term bond rates at home and abroad of 180 basis points in response to a sustained 50 billion cut 1982 dollars provided that the cuts are permanent and are perceived to be so by the public some multi country simulations suggest that u s fiscal shocks are not likely to cause strains within the ems if there is consistency in member countries monetary policies

a note on exchange rate expectations and nominal interest differentials a test of the fisher hypothesis this note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period this proposition often called the fisher open hypothesis or the hypothesis of perfect asset substitutability has been a major component of recent theories of exchange rate determination and has important implications for monetary policy 1 the fisher hypothesis differs from the covered interest parity theorem enunciated by keynes 11 while covered interest parity equates the nominal interest differential between financial centers to a known premium or discount on forward foreign exchange and is thus in principle riskless fisher parity involves risk in an essential way the two conditions are equivalent only when forward exchange rates equal expected future spot rates recent theoretical work for example that of grauer litzenberger and stehle 8 kouri 12 and frankel 6 shows that this need not be the case when market participants are risk averse thus while covered interest parity must always hold exactly in an informationally efficient asset market with no transactions costs fisher parity need not nominal interest differentials may reflect risk premia in addition to expected exchange rate movements 2 it should be emphasized at the outset that the tests conducted in this paper are really joint tests of the fisher hypothesis and a weak form of foreign exchange market informational efficiency levich 14 has argued that tests of market efficiency are always joint tests involving some hypothesized structure of normal equilibrium returns below we assume informational efficiency and instead test fisher s hypothesized arbitrage condition that nominal interest differentials equal expected percentage changes in exchange rates

a portfolio balance rational expectations model of the dollar mark exchange rate abstract a model is developed in which current account imbalances can be financed through transfers of bonds denominated in either currency the reduced form links the current spot rate to the expected future spot rate via a risk premium which depends on the global currency mix of outside assets that governments impose on private portfolios through budget deficits and interventions and on the global distribution of private wealth among regions with different portfolio preferences an iterative procedure generates rational expectations forecasts of the dollar mark rate which perform somewhat better than forward rates in predicting monthly changes in the spot rate

covered interest arbitrage in the 1970 s abstract this paper provides an empirical overview on covered interest arbitrage during the flexible exchange rate regime of the 1970 s it estimates the cost of transactions in foreign exchange and security markets and shows that these costs account for most of the deviations from parity

negative net foreign asset positions and stability in a world portfolio balance model abstract negative net foreign asset positions have been associated with a troublesome stability problem in flexible exchange rate regimes in this paper a symmetrically specified two country portfolio balance model is employed to provide some perspective on this problem it is concluded that negative net foreign asset positions do not constitute an independent source of instability instability can arise only under nonrational expectations or because of destabilizing speculation

an examination of the objectives of monetary policy in four developing economies abstract this paper presents a model of monetary policy in developing economies which is estimated for mexico korea india and zambia the model is designed to identify both the goals and patterns of policy in these economies the results demonstrate that the authorities in these economies respond to foreign reserve flows partially sterilizing their impact in three countries they also respond to domestic variables accomodating seasonal variation and growth or price changes

international asset pricing with time varying risk premia abstract recent empirical evidence that forward exchange rates are biased predictors of future spot rates can also be interpreted as evidence against the hypothesis of a constant risk premium consequently reconciliation of this evidence with efficient international capital markets requires the existence of time varying risk premia this paper modifies kouri s 1977 asset pricing model to allow time varying exected returns on assets eliminates the assumption of a risk free real asset and derives the characteristics of the risk premia in the forward market as well as the equilibrium yield relationships among the equities and riskless nominal bonds of all countries

the capitalization of income streams and the effects of open market policy under fixed exchange rates abstract this paper investigates the long and short run neutrality of open market monetary policy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies using an illustrative portfolio balance model it shows that when the public discounts the future tax liabilities associated with the national debt and the central bank supports the exchange rate by trading non interest bearing foreign assets open market policy has a short run effect but no long run effect on the domestic price level and interest rate when the foreign exchange intervention assets earn interest that is rebated to and capitalized by the public open market policy loses even its short run efficacy the capital account offset to monetary policy is complete

sterilization policies in the ems countries an empirical analysis abstract the paper analyses the extent to which fixed exchange rates within the ems have hindered national monetary policies the results show that the german authorities have relatively more freedom in pursuing domestic monetary objectives the others may notwithstanding foreign exchange controls occasionally encounter severe exchange constraints

testing the portfolio balance model a multi lateral approach abstract this paper estimates outside bond demand equations from the portfolio balance model of exchange rate determination for five currencies the approach used in this paper differs from other structural studies of the portfolio balance model in two fundamental ways first while previous studies limit the portfolio choice to domestic assets relative to a composite foreign asset the model analyzed in this paper decomposes the foreign asset by currency second exploiting the cross equation correlation that arises from this decomposition provides more efficient estimates of the asset market parameters

estimation of portfolio balance functions that are mean variance optimizing the mark and the dollar abstract this paper offers a way of efficiently estimating the parameters in demand functions for mark and dollar assets the technique imposes the constraint that the parameters rather than being determined arbitrarily are based on investors optimizing behavior regarding expected returns and variances it dominates some previous empirical applications of finance theory in the respect that the expected returns are allowed to vary from period to period which is a necessary feature of any macro model the constraint that the parameters are based on mean variance optimization is also tested and not rejected

econometric approaches to empirical models of exchange rate determination abstract this paper identifies four principal econometric approaches to the estimation and testing of asset market models of exchange rate determination the traditional static reduced form approach the error correction and co integration dynamic reduced form approaches the simultaneous equations approach and large scale multi equation macroeconometric simulation models each of these econometric approaches is evaluated with respect to its theoretical validity and the comparative properties of the empirical results obtained this leads to the conclusion that although there may be little to choose between the different theoretical exchange rate models there may be grounds for favouring a multi equation simultaneous estimation procedure for this class of models

intervention in the mark dollar market the authorities reaction function abstract this paper investigates the intervention behavior of the deutsche bundesbank in the dollar dm market over the period 1974 to 1981 an intervention reaction model is developed which stresses the conditioning role of perceived exchange rate uncertainty the most important findings from non linear estimates are i an increase in perceived exchange rate risk shifts the bundesbank s trade off between money and exchange rate control in favor of the former aim probably due to risk aversion of the managers of the foreign department ii the bank tries to counter exchange speculation by compressing the expected risk premium and iii the bank does not completely sterilize

the forward exchange rate and macroeconomics abstract this paper discusses the conditions under which a risk premium is incorporated in the forward exchange rate a new condition for the existence of a risk premium is proposed we show that earlier models of the risk premium which emphasize either the role of net foreign investment or of the relative supplies of outside assets are not suited for assessing the effects of changes in macroeconomic policy

on the effects of sterilized intervention an analysis of weekly data abstract as the recent empirical studies surveyed here illustrate it is very difficult to demonstrate that the exchange rate risk premium depends through a portfolio balance channel on the currency composition of outside assets the existence of a portfolio balance effect is a necessary condition for sterilized intervention to be a genuinely independent tool of monetary policy this paper studies u s canadian data and attempts to improve on earlier studies by using higher frequency weekly data and by implementing an appropriate instrumental variables technique 2s2sls however we still fail to detect evidence of a portfolio balance effect

the influence of income on international capital movements abstract changes in income via their influence on asset demands affect portfolio allocation and potentially international capital movements this hypothesis derives empirical support albeit limited and correspondingly tenuous from the identification of a consistently significant influence of income on non official australian portfolio investment abroad

evaluating the oecd s forecasts for economic growth the size and nature of the errors in gdp forecasts in the g 7 countries from 1968 to 1995 are examined these gdp estimates are published by the organization for economic cooperation and development in oecd economic outlook two alternative hypotheses are tested concerning why revisions arise the first hypothesis is that preliminary announcement is simply the true variable measured with error in this case the preliminary announcement is an unconditionally unbiased but irrational forecast of the true value that is the revision is correlated with known variables in particular it is correlated with the preliminary announcement itself the second hypothesis is that revisions arise because the early gdp estimates are a rational forecast of the true variable in this case the error is a rational forecast error and is therefore uncorrelated with known information

inflation and monetary policy in selected west and central african countries abstract this paper studies the conduct and performance of monetary policy in five west and central african countries cameroon cote d ivoire gabon ghana and nigeria the first three are members of the cfa zone and maintain a fixed peg vis a vis the french franc the other two have recently opted for a more flexible exchange rate regime no general conclusion can be drawn on the monetary policy exchange rate policy nexus estimates of the offset coefficient are significantly different from negative one but var estimation results on the ability of the monetary authority to pursue an independent inflation target are mixed the monetary authorities of ghana and nigeria sterilize the accumulation of net foreign assets to a limited degree no such evidence exists for cfa zone members