mean reversion in short horizon expected returns this article develops and estimates a simple model for monthly expected stock returns that relies on the rapidly decaying structure of shorter horizon weekly expected returns the most striking aspect of our findings is that the rapid mean reversion in short horizon expected returns implies much greater variation through time in monthly expected returns than has been documented in earlier studies for instance during the 1962 to 1985 period over 25 percent of the return variance of small firms can be explained by time variation in expected returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

temporary import and export quotas and the current account abstract this paper provides a comprehensive analysis of temporary import and export quotas in a two period optimization model imposing much weaker restrictions on preferences and production technologies than in the existing literature we demonstrate that under net substitutability the imposition of a temporary quota which reduces imports by a small amount improves the current account and causes an appreciation of the real exchange rate if the initial equilibrium is quota restricted the effects of tightening the quota are ambiguous by contrast under substitutability a tightening of export quotas necessarily leads to a current account deficit regardless of the nature of the initial equilibrium

a neoclassical model of the balance of payments this paper analyses the transitory and long run effects of devaluation and tariffs as well as the effects of alterations in the domestic money supply and the terms of trade for a small country on fixed exchange rates these issues are investigated in a self contained dynamic optimization model of the sort popularized by brock 1974 1975 familiar results in the trade literature are thereby explicated for the nonspecialist who is nonetheless familiar with brock s work there are some new results regarding the role played by income and substitution effects in determining the consequences of terms of trade shifts this paper introduces a perfect foresight optimizing model of the monetary approach to the balance of payments for a small country on fixed exchange rates the model is then used to analyse the effects on the balance of payments of devaluation of a tariff and of changes in the terms of trade the effects of devaluation tariffs and changes in the terms of trade have been analysed previously within the framework of nonoptimizing models dornbusch 1973 1980 and anderson and takayama 1977 have studied the effect of devaluation mussa 1974 1976 anderson and takayama 1978 1981 and batra and ramachandran 1980 have studied the effect of tariffs and rodriguez 1976 batra and ramachandran 1980 and anderson and takayama 1981 have studied the effect of changes in the terms of trade optimizing models in which real balances appear as an argument in the utility function are increasingly popular in international economics the general approach was inspired by sidrauski 1967 and brock 1974 1975 recent contributions to the trade literature using this framework include dornbusch and mussa 1975 calvo 1980 1981 liviatan 1981 and obstfeld 1981 a 1981 b 1982 the purpose of this paper is to translate the conventional small country fixed exchange rate model into this framework the results are generally congruent with those in the nonoptimizing literature which suggests that the money in the utility function approach works well here compared to the nonoptimizing literature the real advance is that price adjustment and price expectations are endogenous and rational among the benefits are that one need not postulate the ad hoc price adjustment mechanism used by anderson and takayama nor the backward looking and hence irrational permanent income formulation used by rodriguez furthermore there has been controversy over the balance of payments effects of a shift in the terms of trade while the model s predictions on this issue are theoretically ambiguous the model shows that the answer depends crucially on the magnitude of income effects this clarifies the conditions required for a terms of trade shift to improve or worsen the balance of payments

exchange rate policies and endogenous time preference a dynamic analysis of a small open economy abstract the effects of exchange rate policies are examined for a small open economy with endogenous rate of time preference using optimizing framework and introducing money into the utility function it is shown that a depreciation of the domestic currency generates a surplus in the current account it also leads to an increase in consumption and a decrease in the holdings of real balances in the long run

the dollarization of a small economy within a utility maximizing framework we study the effects of replacing the national currency with the dollar in a small open economy the impact effect is a drop in the levels of liquidity and wealth the economy reaccumulates real balances by reducing consumption and showing a trade surplus the welfare implications of the program depend on the social rate of time preference and the inflation rate differential we show that the u s can improve both its own welfare and that of the small country s by bribing it into switching currencies we study how these results change with the introduction of capital mobility

a variance ratio test of random walks in foreign exchange rates the separate variance ratio tests under homoscedasticity and heteroscedasticity both provide evidence rejecting the random walk hypothesis using five pairs of weekly nominal exchange rate series over the period from august 7 1974 to march 29 1989 the rejections cast doubt on the random walk hypothesis in exchange rates which has received support in the existing literature furthermore since the rejections are robust to heteroscedasticity they suggest autocorelations of weekly increments in the nominal exchange rate series which may be consistent with the exchange rate overshooting or undershooting phenomenon in the past decade there has been a consensus that nominal exchange rates follow a random walk process since a unit root and uncorrelated increments are both required for a random walk process the random walk is usually supported in the existing literature either because a unit root component is detected in the exchange rate series or because the increment in the exchange rate is found to be serially uncorrelated for example meese and singleton 1982 and baillie and bollerslev 1989 both find a unit root component in the exchange rate series and the evidence provided in giddy and dufey 1975 cornell and dietrich 1978 logue sweeney and willett 1978 and hsieh 1988 all suggest that the exchange rate series contains uncorrelated increments in this paper the random walk hypothesis for the nominal exchange rate series is reexamined by applying a variance ratio test developed in lo and mackinlay 1988 to five pairs of weekly nominal exchange rate series over the period from august 7 1974 to march 29 1989 while there are two implications of the random walk unit root and uncorrelated increments this paper focuses on the uncorrelated increments aspect this is not only because there are some important departures from the random walk that unit root test cannot detect but also because the autocorrelation aspect may yield

common persistence in conditional variances since the introduction of the autoregressive conditional heteroskedastic arch model in engle 1982 numerous applications of this modeling strategy have already appeared a common finding in many of these studies with high frequency financial or monetary data concerns the presence of an approximate unit root in the autoregressive polynomial in the univariate time series representation for the conditional second order moments of the process as in the so called integrated generalized arch igarch class of models proposed in engle and bollerslev 1986 in the igarch models shocks to the conditional variance are persistent in the sense that they remain important for forecasts of all horizons this idea is readily extended to a multivariate framework even though many time series may exhibit persistence in variance it is likely that several different variables share the same common long run component in that situation the variables are naturally defined to be co persistent in variance and the co persistent linear combination is interpretable as a long run relationship conditions for co persistence to occur in the multivariate linear garch model are presented these conditions parallel the conditions for linear co integration in the mean as developed by engle and granger 1987 the presence of co persistence has important implications for asset pricing relationships and in optimal portfolio allocation decisions an empirical example relating to the time series properties of nominal u s dollar exchange rates for the deutschemark and the british pound provides a simple illustration of the ideas

target zones and exchange rates an empirical investigation this paper develops an empirical model of exchange rates in a target zone the distribution of exchange rate changes is conditioned on a latent jump variable where the probability and size of a jump vary over time as a function of financial and macroeconomic variables when there is no jump the target zone is credible and exchange rate changes are constrained to remain within the target zone band the paper revisits the empirical evidence from the european monetary system regarding the conditional distribution of exchange rate changes the credibility of the system and the size of the foreign exchange risk premia in contrast to some previous findings we conclude that the french franc deutschmark rate exhibits considerable nonlinearities realignments are somewhat predictable and the credibility of the system did not increase substantially after 1987 moreover our model implies that the foreign exchange risk premium becomes large during speculative crises

the pricing of forward contracts for foreign exchange this paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market if these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies this condition imposes testable restrictions on the parameters of a multivariate regression model the empirical results are consistent with a world in which time varying risk premia cause the observed deviations from unbiased expectations

new evidence on the forward premium puzzle the forward premium anomaly exchange rate changes are negatively related to interest rate differentials is one of the most robust puzzles in financial economics we recast the underlying parity relation in terms of lagged forward interest rate differentials documenting a reversal of the anomalous sign on the coefficient in the traditional specification we show that this novel evidence is consistent with recent empirical models of exchange rates that imply exchange rate changes depend on two key variables the interest rate differential and the magnitude of the deviation of the current exchange rate from that implied by purchasing power parity

the significance of technical trading rule profits in the foreign exchange market a bootstrap approach abstract in this paper we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market we utilize a new data base currency futures contracts for the period 1976 1990 and we implement a new testing procedure based on bootstrap methodology our results suggest that simple technical trading rules have very often led to profits that are highly unusual splitting the entire sample period into three 5 year periods reveals that on average the profitability of some trading rules declined in the latest period although profits remained positive on average and significant in many cases jel f31 f47 g15

the time variation of risk and return in the foreign exchange and stock markets this paper attempts to determine whether the fluctuations of conditional first and second moments which are observed for many assets are consistent with the sharpelintner mossin capital asset pricing model we test the mean variance model under several different assumptions about the time variation of conditional second moments of returns using weekly data from july 1974 to december 1986 that include returns on a portfolio composed of dollar deutsche mark sterling and swiss franc assets together with the u s stock market the results indicate that estimated conditional variances cannot explain the observed time variation of risk premia rates of return on international financial assets are characterized by statistical properties that are quite common to all financial markets they are highly volatile and largely unpredictable these properties make it very difficult to extract statistically reliable estimates of systematic exchange rate and assetprice movements and are at the root of the generally poor empirical performance of international asset pricing models nevertheless two important results have been uncovered by empirical researchers and can be considered a fair characterization of the data a expected returns on foreign assets vary over time cumby and obstfeld 1981 and the numerous articles that followed recently surveyed by frankel and meese 1987 b the volatility of returns of foreign assets also changes over time cumby and obstfeld 1984 hodrick and srivastava 1984 and hsieh 1988 among others as giovannini and jorion 1987 suggest the

currency substitution the recent experience of bolivia abstract one of the more puzzling aspects of bolivia s economic performance since 1986 has been the rapid increase in the share of foreign currency deposits in the domestic banking system that has occurred notwithstanding low inflation rates and a high degree of external stability an analysis of the determinants of currency substitution in bolivia shows that economic variables are statistically significant but have a fairly low explanatory power compared to variables that measure the degree of inertia in the currency substitution process hence conventional fiscal and monetary measures may not be sufficient to reverse the process of currency substitution this points toward an interesting asymmetry where currency substitution increases rapidly with macroeconomic instability but is difficult to reverse even after years of macroeconomic stability

affine models of the joint dynamics of exchange rates and interest rates this paper extends the affine class of term structure models to describe the joint dynamics of exchange rates and interest rates in particular the issue of how to reconcile the low volatility of interest rates with the high volatility of exchange rates is addressed the in complete market approach of introducing exchange rate volatility that is orthogonal to both interest rates and the pricing kernels is shown to be infeasible in the affine setting models in which excess exchange rate volatility is orthogonal to interest rates but not orthogonal to the pricing kernels are proposed and validated via kalman filter estimation of maximal 5 factor models for 6 country pairs

currency substitution and the real exchange rate the utility maximization approach abstract this paper studies the currency substitution hypothesis with rational expectations in terms of a sidrauski type model where domestic and foreign money enter the utility function it shows that contrary to liviatan 1981 the approach does not necessarily contradict calvo and rodriguez 1977 furthermore the impact of monetary stabilization policy is fully characterized with flexible and pre fixed rates for an extension of dornbusch and mussa 1975 a brief analysis of the optimal quantity of money is also provided

seigniorage and the case for national money in countries with high rates of inflation there is typically movement away from the use of the local currency the paper analyzes the costs and benefits of using a local currency with emphasis on the seigniorage foregone by using a foreign money even if it should be desirable for a country to fix its exchange rate it still loses seigniorage if it does not use its own money the case for using a foreign money then turns largely on the superior discipline imposed on domestic policymakers by removing their control over the money supply alternative methods of imposing discipline are discussed estimates of the amount of seigniorage raised by different governments are presented seigniorage amounts in some cases to about 10 percent of government revenue estimates are also presented of both the annual flow and one time stock costs of giving up use of domestic currencies and instead using the dollar the flow cost is typically about 1 percent of gnp and the stock cost is around 10 percent of gnp

the implications of first order risk aversion for asset market risk premiums abstract in an effort to explain simultaneously the excess return predictability observed in equity bond and foreign exchange markets we incorporate preferences exhibiting first order risk aversion into a general equilibrium two country monetary model when we calibrate the model to us and japanese data we find that first order risk aversion substantially increases excess return predictability however this increased predictability is insufficient to match the data we conclude that the observed patterns of excess return predictability are unlikely to be explained purely by time varying risk premiums generated by highly risk averse agents in a complete markets economy

cross currency cross maturity forward exchange premiums as predictors of spot rate changes theory and evidence abstract this paper shows that in predicting the spot rate of a currency the term structures of forward premiums of other currencies have incremental information content in addition to the term structure of the currency s own forward premiums the theoretical model motivating the analysis hinges on the abundant evidence on the co movements of excess returns from investing in different currencies the empirical results are obtained through fiml estimation of a vector error correction model for weekly data on three bilateral us dollar exchange rates

temporary stabilization predetermined exchange rates the paper analyzes the impact of a stabilization policy based on a temporary reduction in the rate of devaluation against a background in which a constant rate of devaluation has no real effects it is shown that the temporary policy does and furthermore that the real effects tend to become bigger in absolute value as the horizon of the temporary policy is shortened the central discussion is carried out in terms of a one good cash in advance model with perfect capital mobility and ramsey type consumers results are extended to account for home goods and variable velocity the roles of capital mobility and banking liberalization are briefly discussed

on the outcome of inconsistent programs under exchange rate and monetary rules abstract this paper studies the case of inconsistent programs of monetary policy that is programs incompatible in the long run with a given budget deficit so that at some point in the future there is an eventual crisis and demise of the program all of which is from the outset anticipated by the public the context is one of a small open economy with perfect foresight in which two sets of possibilities are analyzed i a monetary or an exchange rule for the conduct of monetary policy and ii presence or absence of capital mobility it is found that while the choice of the rule is unimportant restrictions on capital mobility determine a very different response for the case of either rule concerning side effects of the program on non monetary variables and on the post crisis level of country indebtedness

devaluation levels versus rates abstract in a context of infinitely lived families a la sidrauski where consumers are lump sum compensated for the inflation tax and there is no capital mobility it is shown that a devaluation improves while an increase in the rate of devaluation deteriorates the balance of payments

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

exchange rate uncertainty forward contracts and international portfolio selection in this paper ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates it is shown that exchange rate uncertainty is a largely nondiversiflable factor adversely affecting the performance of international portfolios therefore it is essential to effectively control exchange rate volatility for that purpose two methods of exchange risk reduction are simultaneously employed multicurrency diversification and hedging via forward exchange contracts the empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the u s domestic portfolio in out of sample periods since grubel 11 applied modern portfolio theory mpt to international investment various authors such as levy and sarnat 17 solnik 20 and lessard 16 have examined the gains from international diversification of investment portfolios for the purpose of establishing the gains from international diversification these studies constructed international portfolios using historical risk and return data from a period of fixed or relatively stable exchange rates and showed that internationally diversified portfolios dominated purely domestic portfolios in terms of mean variance efficiency from the standpoint of today s investors however the previous studies fail to offer operational guidance for international diversification for two important reasons first it is now questionable whether the past findings are still relevant under the current flexible exchange rate regime second by being ex post in nature the past studies ignored the issue of estimation risk or parameter uncertainty and therefore may have overstated the realizable portion of the potential gains from international diversification fluctuating exchange rates are likely to mitigate the potential gains from international diversification by making investment in foreign securities more risky as will be shown later a fluctuating exchange rate contributes to the risk of foreign investment not only through its own variance but also through its positive covariances with the local stock market returns during our sample period of 1980 through 1985 for example exchange rate volatility is found to account for about fifty percent of the volatility of dollar returns from investment in the stock markets of such major countries as germany japan and the u k furthermore the exchange rate changes vis a vis the u s dollar are found to be

temporary stabilization policy abstract the effects of a temporary slowdown in the rate of expansion of money supply are studied under ramsey lucas and money superneutrality assumptions it is shown that such a policy expands consumption and leads to capital decumulation and current account deficits in the short run the model is a benchmark case in which temporary policy is always detrimental to welfare connection with the policy credibility issue is briefly discussed

dynamics of the exchange rate in anticipation of pegging abstract this paper studies an economy in which agents expect the current floating rate regime to be interrupted on a specific future date by a transitional fixed rate policy when the new peg is not revealed in advance the path of the floating rate in anticipation of pegging is determined by the interaction between what agents perceive to be the objectives and the constraints of the central bank the paper highlights the role of the pegging date the duration of the fixed rate interval the quantity of reserves available to the authorities and the nature of policies expected after pegging is terminated

balance of payments dynamics and exchange rate management abstract this paper studies the dynamics of the balance of payments in response to policy disturbances under the assumption that the central bank devalues the country s currency over time at a constant pre announced rate depending on the magnitudes of the parameters of the model i find that a given disturbance may result in qualitatively different short run behavior of the balance of payments accounts in each case however the adjustment process will lead the economy to a stable long run equilibrium provided the government finances its spending according to a certain set of rules

dollarization and inflation in a two country optimization model abstract in a two country two currency model this paper examines the conditions of dollarization analyzes the effect of government inflation finance and studies the strategic interdependence of different currency inflation jel f30

eu and russian discourse on energy relations the paper explores the dominant interpretations of the eu russian energy relations by identifying three dominant concepts around which these interpretations revolve 1 integration 2 liberalization and 3 diversification building on a detailed discourse analysis of 97 textual units produced by eu leaders and institutions and 104 documents and speeches by russian policy makers the paper argues that these three discourses differ widely in their assessment of the two partners mutual ties both in terms of the relationship s symmetry and the perceived benefits for each partner the paper comes up with two basic arguments first in spite of the shared usage of the three basic notions by both sides the interpretations of each of the discourses are widely different in the eu and in russia which causes continuous frictions and misunderstandings second and surprisingly the discourse of integration is dominant both in the eu and russia which shows that the claims about the alleged securitization of eu russian energy relations are clearly exaggerated

currency trade and capital flows in general equilibrium this paper studies currency trade and capital flows in a one good general equilibrium exchange model with utility maximizing individuals the effects of both monetary and endowment shocks are examined it is shown that both can cause trade and capital flows the model is a two country version of the twostate optimizing model used recently by leroy 1984a 1984b to study the effects of monetary and endowment shocks in a closed economy each country issues its own currency real and nominal bonds and equity shares each receives an endowment of a perishable consumption good the demand for money is generated by entering real balances into the utility function as in dornbusch and mussa 1975 calvo 1981 liviatan 1981 obstfeld 1981a 1981b 1982 razin 1981 stockman 1983 and michener 1984 each country holds both currencies an assumption made only by liviatan both monetary growth and endowments of the consumption

the need for improved financial reporting of a developing country energy utility abstract some consideration has been given to regulatory and institutional reforms to facilitate sustainable development in electricity usage in papua new guinea but little attention has been paid to bringing about full compliance of financial reporting expectations of the country s main energy utility examining documentary evidence of the audit reports of the auditor general s office of papua new guinea this study considers the financial reporting compliance of png power for the period 2007 2013 and the means by which compliant reporting may be improved the results of the study reveal that the financial statements of png power are late and receive disclaimers of opinion from the auditor general s office which suggest that png power s stakeholders are not receiving accurate and reliable financial information to make informed decisions about sustainable development of electricity usage and planning in papua new guinea the study reveals that it would take little resources to improve png power s reporting which in turn could enhance national energy policy decision making and energy utility accountability

the behavior of eurocurrency returns across different holding periods and monetary regimes recent empirical studies of the risk premium across foreign exchange and other asset markets such as equity and longer term bonds have found conflicting evidence about the latent variable model restrictions of the consumption based intertemporal capital asset pricing model while studies using data for holding periods of one month or less generally reject the model evidence using three month holding periods indicates that the model cannot be rejected when including the returns on long relative to short deposit rates this paper investigates the sources of differences in results using returns on foreign exchange and eurocurrency deposits at three different maturities

special exchange rates for capital account transactions the governments of developing countries are constrained in the effective implementation of domestic policy by the interlinkages of national and international financial markets domestic macroeconomic conditions are influenced by the interaction of national and world interest rates and prices and through the impact of real exchange rates on employment the domestic responses to changes in these factors are often strong and rapid this article suggests that dual rates can indeed be used successfully as a strictly transitory policy to offset sudden shocks in capital markets the article develops models which indicate why these dual systems are able to prevent inflationary or recessionary pressures caused by a misaligned exchange rate in the short term while free capital account rates can cut the flow of capital flight however a dual rate system cannot prevent a possibly equivalent loss of foreign reserves that will ultimately result because of the impact of the overvaluation of the commercial rate on the trade balance in the longer term a dual rate system with a misaligned commercial rate exacerbates the government s deficit ultimately real wages must be cut and real interest rates raised to generate sufficient foreign exchange to finance the external debt thus a dual rate works well if the commercial rate is maintained close to the equilibrium level

on biases in the measurement of foreign exchange risk premiums abstract the hypothesis that the forward rate is an unbiased predictor of the future spot rate has been consistently rejected in recent empirical studies this paper examines several sources of measurement error and misspecification that might induce biases in such studies although previous inferences are shown to be robust to a failure to construct true returns and to omitted variable bias arising from conditional heteroskedasticity in spot rates we show that the parameters were not stable over the 1975 89 sample period estimation that allows for endogenous regime shifts in the parameters demonstrates that deviations from unbiasedness were more severe in the 1980s jel f31

devaluation levels vs rates and balance of payments in a cash in advance economy abstract this paper investigates the consequences of the currency devaluation both in levels and rates on the balance of payments in a cash in advance economy with finite horizons endogenous capital accumulation and international capital immobility in this context a once and for all currency devaluation induces a balance of payments surplus whereas a sustained increase in the rate of devaluation produces in principle an ambiguous effect on the balance of payments if however non restrictive assumptions on some structural parameters are made an increase in the devaluation rate leads to a balance of payments surplus the exact opposite of calvo s result j int econ 11 2 1981 165

heterogeneous expectations and tests of efficiency in the yen dollar forward exchange rate market this paper examines the efficiency of the forward yen dollar market using micro survey data conventional tests of unbiasedness do not correspond directly to the zero profit condition instead we use the survey data to calculate potential profits of individual forecasters based on a natural trading rule we find that although the survey data are not the best predictor of future spot rates in terms of typical mean square forecast error criteria the survey data can be used to obtain on average positive profits however these profits are small and highly variable similar results are found when we examine profits generated by a trading rule using regression forecasts the profits are found to be correlated with risk type variables but not other available information

the time variation of risk and return in foreign exchange markets a general equilibrium perspective this article successively introduces variable velocity durability and habit persistence in a standard two country general equilibrium model and explores their effects on the variability of exchange rate changes forward premiums and the foreign exchange risk premium a new feature of the model is that agents make decisions at a weekly frequency and face conditionally heteroskedastic shocks nevertheless even the most complex model fails to deliver sufficiently variable risk premiums without causing forward premiums and exchange rates to be excessively variable unlike previous models the model can roughly match the persistence of forward premiums article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

political shocks international reserves and the real exchange rate the argentine case abstract exogenous shocks to international reserves are introduced as an indicator for exchange rate adjustments these reserves shocks are identified for argentina in the 1970s and they appear to have been induced by political upheavals as well as by changes in the external terms of trade granger and modified sims causality tests indicate that the shocks to reserves did lead the real exchange rate from the seemingly erratic series of mini and maxi devaluations a rule of crawling galloping peg is estimated with the reserves shocks as significant independent variables that affected the pace of devaluations the crawling peg used as an instrument to pursue an international reserves target was the channel through which changes in the political and economic environment of the country were transmitted to fluctuations of its real exchange rate

is it risk explaining deviations from uncovered interest parity abstract this paper analyzes ex ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium after presenting evidence that both nominal and real expected speculative profits are nonzero the paper examines if real returns to forward speculation are consistent with consumption based models of risk premia estimates of the conditional covariance between real speculative returns and real consumption growth are presented and like ex ante returns to forward speculation they exhibit statistically significant fluctuations over time and often change sign

capital mobility and devaluation in an optimizing model with rational expectations this paper examines the effects of ex change rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future the economy studied is one in which the authorities allow free mobility of capital under a crawling peg exchange rate regime many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad and some recent efforts to use the rate of crawl as an instrument of anti inflation policy have attracted considerable interest see carlos diaz alejandro tools similar to those employed here have been applied by guillermo calvo forthcoming to study this type of exchange rate management under conditions of capital immobility this abstract was borrowed from another version of this item

rethinking an old empirical puzzle econometric evidence on the forward discount anomaly using both semiparametric and parametric estimation methods this paper corroborates earlier findings of fractionally integrated behaviour in the forward premium two new explanations are also proposed to help reconcile earlier conflicting empirical evidence on the time series properties of the forward premium traditional regression approaches used to test the forward rate unbiasedness hypothesis are then evaluated including regression in levels in returns fama s 1984 regression and in error correction format interesting statistical and or interpretive implications are found in all three cases for example the predictions of the appropriate nonstandard limit theory are consistent with many of the standard empirical results reported from fama s regression including the commonly occurring yet puzzling negative correlations between spot returns and the forward premium it is suggested that the principal failure of unbiasedness may be due instead to the difference in persistence between these two series copyright 2001 john wiley sons ltd

recent estimates of time variation in the conditional variance and in the exchange risk premium abstract the optimal diversification model of investors portfolio behavior can give a linear relationship between the exchange risk premium and the conditional exchange rate variance this note surveys recent empirical work that allows the conditional variance itself and therefore the risk premium to vary over time in particular it examines the implications of recent empirical estimates for earlier arguments based on the assumption that the conditional variance was constant over time that the exchange risk premium had to be small in magnitude and variability

the time variation of expected returns and volatility in foreign exchange markets this article analyzes the time variation in conditional means and variances of monthly and quarterly excess dollar returns on eurocurrency investments all results are based on a vector autoregression with weekly sampled data on exchange rate changes and forward premiums of three currencies both past exchange rate changes and forward premiums predict future forward market returns moreover past forward premium volatilities predict the volatility of exchange rates expected forward market returns are very variable and persistent and exhibit marked comovements these results carry over to cross rate e g yen mark investments as well

temporary import quota and the current account this paper studies the effects of a temporary import quota on the real exchange rate and the current account response is determined by the interaction between two opposing forces the intertemporal relative price effect tends to improve the current account while the wealth the intertemporal relative price effect tends to improve the current account while the wealth effect contributes to a deterioration for a sufficiently low degree of intertemporal consumption substitution the wealth effect is shown to dominate in this event the current account deteriorates in response to a temporary quota and improves only after the quota is lifted

the role of exchange rates in intertemporal risk return relations abstract this paper investigates the significance of an intertemporal relation between expected returns on countries stock market portfolios and their risk exposures to the world market portfolio we find that the intertemporal risk return relation differs significantly under different currency denominations the slope coefficient is the largest at around seven when the returns are denominated in japanese yen moderate at about five when the returns are denominated in the canadian or us dollars and the smallest at around three when the returns are denominated in pound or euro and its predecessors the ranking of the risk return coefficients across different currency denominations remains the same when we replace country equity indices with global industry portfolios in estimating the intertemporal relations when we change the return frequency from monthly to daily and when we consider different specifications for the conditional covariance process

reserves and the managed float a search for the essentials we examine the stability of rules that determine the rate of devaluation as a function of the level of reserves the analysis is conducted in terms of an overlapping generations and a sidrauski type model with rational expectations and without capital mobility on the whole the analysis confirms results by rodriguez 1981 in a substantially different model by which high speeds of adjustment tend to provoke instability

temporary capital controls in a balance of payments crisis abstract this paper analyzed the effect of anticipated temporary capital controls ina balance of payments crisis using a model based on intertemporal optimization the anticipation of the controls affects the economy from the beginning of the crisis usually creating a current account deficit a speculative attack can occur just before the controls are imposed but a transitory period of capital inflows is also possible a speculative attack is less likely when the fiscal deficit is small or when the level of reserves is high at the time the controls are imposed

current account effects of a temporary change in government expenditure a perfect foresight model of intertemporal utility maximization is used to analyze the current account effects of a temporary increase in government spending the relationship between the marginal utility of private consumption and the supply of public goods in the economy is shown to play a crucial role in determining the qualitative nature of the optimal current account response the link between the timing of the policy change and the magnitude of the current account effect is also examined

the framing of unconventional natural gas resources in the foreign energy policy discourse of the russian federation the advent of unconventional resources of natural gas has altered the order on global as well as continental gas markets with rising liquidity the position of established dominant suppliers is eroding we focus on the initial response of russia the leading supplier of natural gas to europe to the new situation building the research on unit level constructivism and discourse analysis we use frame analysis to reveal what image of unconventional resources was constructed in russian foreign energy policy discourse fepd in the period between 2009 and 2011 when the unconventional revolution did not yet have any sharp contours we conclude that in russian fepd the unconventionals are considered as a distinctive and inferior source of energy compared to conventional natural gas emphasis is put on their economic irrationality and environmental hazards the bottom line of the discourse is the idea that there is a choice between conventional and unconventional sources with this choice being framed as one between good and bad or right and wrong

the term structure of forward exchange premiums and the forecastability of spot exchange rates correcting the errors we develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and