We fit nonlinearly mean‐reverting models to real dollar exchange rates over the post‐Bretton Woods period, consistent with a theoretical literature on transactions costs in international arbitrage. The half lives of rate shocks, calculated through Monte Carlo integration, imply faster adjustment speeds than hitherto recorded. simulations reconcile our results large empirical unit roots by showing that when is mean reverting, standard univariate root tests have low power, while multivariate...

ABSTRACT We investigate the relation between global foreign exchange (FX) volatility risk and cross section of excess returns arising from popular strategies that borrow in low interest rate currencies invest high currencies, so‐called “carry trades.” find are negatively related to innovations FX volatility, thus deliver times unexpected when provide a hedge by yielding positive returns. Furthermore, we show dominates liquidity our proxy also performs well for pricing other portfolios.

Our paper assesses progress made by the profession in understanding whether and how exchange rate intervention works. We review theory evidence on official intervention, concentrating primarily work published last decade or so. conclude that, unlike profession's consensus of 1980s, can be effective, especially as a signal policy intentions when publicly announced concerted. note an apparent empirical puzzle concerning secrecy much suggest another way for to effective which has received...

We show that a global imbalance risk factor captures the spread in countries’ external imbalances and their propensity to issue liabilities foreign currency explains cross-sectional variation excess returns. The economic intuition is simple: net debtor countries offer premium compensate investors willing finance negative because currencies depreciate bad times. This mechanism consistent with exchange rate theory based on capital flows imperfect financial markets. also find priced...

This paper examines foreign exchange intervention based on novel daily data covering 33 countries from 1995 to 2011. We find that is widely used and an effective policy tool, with a success rate in excess of 80 percent under some criteria. The works well terms smoothing the path rates, stabilizing narrow band regimes. Moving level flexible regimes requires conditions are met, including use large volumes made public supported via communication. (JEL E52, E58, F31, F33, O19, O24)

Journal Article Capital Flows to Developing Countries: Long- and Short-Term Determinants Get access Mark P. Taylor, Taylor Search for other works by this author on: Oxford Academic Google Scholar Lucio Sarno The World Bank Economic Review, Volume 11, Issue 3, September 1997, Pages 451–470, https://doi.org/10.1093/wber/11.3.451 Published: 01 1997

Abstract. This paper provides a selective overview of puzzles in exchange rate economics. We begin with the forward bias puzzle: high interest currencies appreciate when one might guess that investors would demand higher rates on expected to fall value. then analyse purchasing power parity real displays no (strong) reversion stable long‐run equilibrium level. Finally, we cover disconnect lack link between nominal and economic fundamentals. For each puzzle, critically review literature...

Journal Article An Economic Evaluation of Empirical Exchange Rate Models Get access Pasquale Della Corte, Corte University Warwick Address correspondence to Lucio Sarno, Finance Group, Business School, Warwick, Coventry CV4 7AL, UK; lucio.sarno@wbs.ac.uk. Search for other works by this author on: Oxford Academic Google Scholar Sarno AXA Investment Managers, and Centre Policy Research (CEPR) Ilias Tsiakas The Review Financial Studies, Volume 22, Issue 9, September 2009, Pages 3491–3530,...

Using novel real-time data on a broad set of economic fundamentals for five major US dollar exchange rates over the recent float, we employ predictive procedure that allows relationship between and to evolve time in very general fashion. Our key findings are that: (i) well-documented weak out-of-sample ability rate models may be caused by poor performance model-selection criteria, rather than lack information content fundamentals; (ii) difficulty selecting best model is largely due frequent...

ABSTRACT We study the information in order flows world's largest over‐the‐counter market, foreign exchange (FX) market. The analysis draws on a data set covering broad cross‐section of currencies and different customer segments FX end‐users. results suggest that are highly informative about future rates provide significant economic value. also find groups can share risk with each other effectively through intermediation large dealer, differ markedly their predictive ability, trading styles, exposure.

We assess the properties of currency value strategies based on real exchange rates.We find that rates have predictive power for cross-section excess returns.However, adjusting key country-specific fundamentals (productivity, quality export goods, net foreign assets, and output gaps) better isolates information related to risk premium.In turn, resulting measure displays considerably stronger returns.Finally, content in our is distinct from embedded popular strategies, such as carry momentum.