We employ a multivariate BEKK GARCH model which allows news to affect conditional volatility in an asymmetric manner. The asymmetric model outperforms the standard symmetric model, implying that efficient financial decision makers should not treat good and bad news as homogenous. We estimate the conditional variance and covariance of the Japanese yen, Swiss franc and British pound vis-à-vis the...

This paper concentrates on stability properties of heterogeneous agent models which include trend traders. So far, papers have only described the models’ behaviour in the very long run. I propose an explanation for the phenomenon that computer simulations of these models regularly converge if certain parameter constellations are used. In particular, insights of physics concerning time-delayed f...

Although the real exchange rate real interest rate (RERI) relationship is central to most open economy macroeconomic models, empirical support for the relationship is generally found to be rather weak. In this paper we re-investigate the RERI relationship using bilateral U.S. real exchange rate data spanning the period 1978 to 2007. Instead of testing one particular model, we build on Campbell ...

We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and six. Focusing on the four-shock specification, we identify, using sign restrictions, two non-policy shocks, demand and supply, and two policy shocks, monetary and fiscal. We obtain ...

This study investigates an adjustment process in the bilateral trade balances of five countries within the Caribbean, with their largest trading partner, namely the United States. Unlike previous studies, this study controls for oil prices which play a vital role in the countries’ trade balances. A panel econometric technique was utilized using annual data over the period 19802012. Analysis of ...

In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The empirical results suggest that this model does successfully explain daily DM/Dollar forward exchange rate dynamics from 1982 to 1998. Moreover, our findings turned out to be relative robust by estimating the model in subs...

We investigate the implications of the new price information in the latest International Comparison Program (ICP) survey for evaluating the year 2005 exchange rate misalignment estimates. A decomposition exercise reveals that the misalignment revisions are substantially affected by the ICP price updates. Two measurement-related and four economic factors are used to explain the differences in mi...

This paper investigates the interrelation and information flows between the Won–Dollar spot and offshore forward, i.e., NDF markets. In particular, this paper focuses on the impact of the reform in the Korean exchange rate systems, which occurred in December 1997 in response to the currency crisis, on the relation between the two markets. Using the augmented GARCH formulation, this paper finds ...

This paper studies the Balassa-Samuelson hypothesis in two areas with strong differences in economic development, sixteen OECD countries and sixteen Latin American economies. Applying panel cointegration and bootstrapping techniques that solve for cross-sectional dependence problems in the data, we find that the second stage of the hypothesis, which relates relative sector prices with the real ...