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  1. Dynamic demand adjustment and exchange rate volatility
    Author: Corbo, Vesna
    Published: 2014
    Publisher:  Sveriges Riksbank, Stockholm

    A common finding in the international-economics literature is that the elasticity of substitution between domestically produced and imported goods is smaller in the short than in the long run. Despite this, most of today's commonly used macroeconomic... more

    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signature:
    DS 204 (291)
    Inter-library loan:
    No inter-library loan

     

    A common finding in the international-economics literature is that the elasticity of substitution between domestically produced and imported goods is smaller in the short than in the long run. Despite this, most of today's commonly used macroeconomic models assume this elasticity to be constant. This paper studies the implications of relaxing the assumption that the elasticity is constant over time horizons, through the modeling of habit formation. Compared to the standard model without habits, the proposed dynamic demand model exhibits substantially more volatile exchange rates and can generate higher real exchange rate persistence in the presence of interest rate smoothing. A high volatility of the exchange rate turns out to be optimal in this model and is hence not an artefact of the assumed monetary policy rule. Moreover, the dynamic demand model outperforms the standard model in terms of matching moments in data for a number of other variables.

     
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    Content information
    Source: Union catalogues
    Language: English
    Media type: Book
    Format: Online
    Other identifier:
    hdl: 10419/129706
    Series: Sveriges Riksbank working paper series ; 291
    Subjects: Elasticities; Exchange Rates; Habit Formation; Optimal Monetary Policy
    Scope: Online-Ressource (65 S.), graph. Darst.
  2. Interventions and expected exchange rates in emerging market economies
    Author: García-Verdú, Santiago; Ramos-Francia, Manuel
    Published: 2014
    Publisher:  Banco de México, México

    We study variations in the risk-neutral distributions of the exchange rates in Brazil, Chile, Colombia, Mexico, and Peru due to interventions implemented by these countries. For this purpose, we first estimate the risk-neutral densities of the... more

    Location:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signature:
    DS 192 (2014,11)
    Inter-library loan:
    No inter-library loan

     

    We study variations in the risk-neutral distributions of the exchange rates in Brazil, Chile, Colombia, Mexico, and Peru due to interventions implemented by these countries. For this purpose, we first estimate the risk-neutral densities of the exchange rates based on derivatives market data, for one-day and one-week horizons. Second, using a linear regression model, we assess possible effects on the distributions of the expected exchange rates due to these interventions. We find little evidence of an effect on the expected exchange rates' means, volatilities, skewness, kurtoses, risk premia, and tails' parameters. In the few cases for which we do find some statistical evidence of an effect, it tends to be short-lived or not economically significant. On the other hand, we find evidence that interventions which objective is to restore and/or assure the proper functioning of exchange rate markets have a higher probability of success. This probability increases as the amount of resources to intervene at the disposal of the central bank increases. Needless to say, there are limits to the methodology we use.

     
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    Content information
    Source: Union catalogues
    Language: English
    Media type: Book
    Format: Online
    Other identifier:
    hdl: 10419/100110
    Series: Working papers / Banco de México ; 2014-11
    Subjects: Interventions; Exchange Rates; Risk-Neutral Distributions; Generalized Extreme Value Distributions
    Scope: Online-Ressource (32 S.), graph. Darst.
    Notes:

    Zsfassung in span. Sprache