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THERE ARE AT LEAST two statistically firm results regarding international money and capital markets. The first is the theory of interest rate parity is empirically valid for Euro interest rates [8]. The second is forward exchange rates are poor, very likely biased, predictors of future spot exchange rates. The former is a comforting finding in that it assures there are no unexploited arbitrage profits. The latter is troubling (to some) because it might be a symptom of an inefficient market. That interest rate parity holds suggests international exchange and money market arbitrageurs are fully exploiting all profit opportunities. They are behaving rationally. That forward exchange rates fail to predict future spot rates at least unbiasedly suggests the existence of some unknown mechanism which robs predictive ability. In a naive rational expectations view of the world, the failure of forward rates to be unbiased predictors of future spot rates implies either that there is some difference between interest rate pairs other than inflationary expectations, or that forward tares do not capture expected inflation differences in any simple way. This paper addresses the first issue. If there are differences in interest rate pairs which do not solely reflect expected inflation divergences, this must show up as a difference in real interest rates. Such could be the result of actual instantaneous real rates of identical risk being unequal in magnitude, or what is more likely, differences in term premia between interest rate pairs when periods greater than, say, one day are used in interest rate parity and forward rate prediction tests. If there are differential term premia in interest rate pairs of, say, one month or longer then forward exchange rates will mispredict the future spot exchange rate by that margin. [ABSTRACT FROM AUTHOR]

How much is purchasing power parity worth? In this note, I consider an individual with constant relative risk aversion who is engaged in currency speculation. The value of the PPP relationship is estimated by calculating the decline in the utility of the speculative strategy when the PPP relationship is withdrawn from the information set. This approach provides a different perspective for evaluating econometric tests of the relationship. Since there are many expositions of the PPP doctrine, I begin with a definition of the version with which this paper will be concerned. The PPP model is defined by the following assertions. A. The ratio of the consumer price index in one country to the consumer price index in another is proportional to the equilibrium exchange rate between the currencies of the two countries. B. If the actual exchange rate deviates from the equilibrium rate, there will be a predictable tendency for the actual exchange rate to adjust towards the equilibrium rate. [ABSTRACT FROM AUTHOR]

This paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971-80. The Fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world. Using interest rates as a proxy for expected inflation, our data provide consistent support for the Geske and Roll model whose basic hypothesis is that stock price movements signal (negative) revisions in inflationary expectations. Finally, a weak real interest rate effect was found for some of these countries. [ABSTRACT FROM AUTHOR]

The optimal level of domestic money balances may vary according to different degrees of uncertainty concerning the foreign exchange value of the domestic money. That is, in addition to the fundamental determinants of the demand for money—wealth, income, and opportunity cost—certain types of risks, in this case foreign exchange rate uncertainty, may play a role, albeit a small one. In this note, we consider the theoretical arguments supportive of this contention and then present some empirical evidence, based on a variety of money demand functions and using the German economy as the test case. Our findings are strongly suggestive that foreign exchange risk does play a role in determining real money balances. [ABSTRACT FROM AUTHOR]

This article discusses models dealing with the effects of speculation on the forward foreign exchange rate. One of the most widely used models in this regard, the "Modern Theory of the Forward Foreign Exchange Rate," stresses the role of both interest arbitrage and speculation in the determination of the forward rate. The model's reduced form expresses the forward foreign exchange rate as a weighted average of the covered interest-parity exchange rate as well as the future spot rate expected to prevail at the maturity date of the forward contract. The author considers this specification unduly restrictive. Options facing speculators are much broader, as they do not need to buy or sell the relevant currency on the spot market on the date of delivery.

The article presents a discussion on economic inflation and foreign exchange rates in regards to production and economic uncertainty. This research paper applies the techniques of continuous-time contingent pricing theory (CPT) to the foreign exchange market. The authors wish to treat inflationary and productive sources of risk in two countries. The authors contrast real and nominal interest rates, in regards to inflation and provide extensive analysis on interest rate differentials in international markets.

The article discusses the development of finance and investment policies for international business enterprises with a focus on international capital market equilibrium. The author argues that current valuation models do not account for realistic treatment of foreign exchange rate fluctuations, differential international interest rates, or differential international taxes. The article presents the multinational firm valuation based in the international equilibrium pricing model, discusses the impact of firm valuation and the irrelevance of financing and taxes, examines the capital structure policies of a corporation doing business in two countries, including the tradeoffs, and explores multinational capital budgeting.

Recent work in the valuation of speculative investment instruments has focused on hedging theories in a dynamic efficient market framework. The hedging analysis proceeds by demonstrating that a combination of long and short positions in various securities can be used to create an instantaneous risk-free hedge. If the risk-free position is continuously adjusted during some period as security prices randomly fluctuate, then efficient market theory indicates that the hedged investment's holding period return must be the risk-free rate of interest. This paper uses a continuous time hedging model to derive the interest rate parity theory of foreign exchange as an efficient market equilibrium condition. The analysis is similar to Black's [1] discussion of commodities future contracts. The next section of this paper briefly reviews the development of the interest rate parity theory in a static framework. This is followed by a statement and discussion of the assumptions used in the continuous time analysis. The mathematical treatment of hedging in a random walk spot exchange market is presented in the fourth section. [ABSTRACT FROM AUTHOR]

This brief paper will show that (a) a theoretical equilibrium state of the world exists in the absence of capital controls and trade barriers when prices for the same goods in different markets are equal, after translation at the spot exchange rate; (b) differences in rates of aggregate price change in different markets eventually cause offsetting exchange rate changes which restore condition (a); (c) returns on equivalent securities denominated in different currencies but covered in the forward market are almost instantaneously equalized; (d) the market's expected rate of change of the exchange rate equals, to a close approximation, the control-free interest rate differential between the two currencies; (e) in the absence of predictable exchange market intervention by central banks, the interest rate differential is the best possible forecaster of the future spot rate; and (f) the forward rate also provides the best forecast of the future spot rate. A final corollary identifies a relationship between inflation rates and international interest rate differentials. These results are based on four related theories: (i) The purchasing power parity theorem; (ii) The interest rate parity theorem; (iii) The interest rate theory of exchange rate expectations; (iv) The forward rate theory of exchange rate expectations. [ABSTRACT FROM AUTHOR]

International corporations, facing greater risks than domestic ones, also have wider opportunities, and therefore require a planning system specifically adapted to international market uncertainties. This article introduces the reader to financial planning in corporations with international operations and identifies the forecasts necessary in the process. The authors provide a guide to the analysis, interpretation, and use of the market's forecasts of future interest rates and exchange rates in financial planning and performance evaluation. [ABSTRACT FROM AUTHOR]

Intraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of fixed-rate crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the European Monetary System, we find this prediction is borne out. [ABSTRACT FROM AUTHOR]

In a dual-currency, flexible exchange rate model, both nominal and real foreign exchange premia depend on investor risk attitudes, consumption parameters, and the stochastic structure of currency and commodity supplies. When supplies are random, their joint correlation structure determines the sign of the premia. If the money supplies are identically distributed, then all foreign exchange premia, regardless of the currency of denomination, are zero. A positive correlation between the value of a country's currency and its nominal interest rate need not indicate real interest rate movements. Relative bond prices can be negatively correlated with the terms of trade. [ABSTRACT FROM AUTHOR]

In this paper, we explore the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom. Contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant, we find little evidence of a stable relationship between real interest rates and real exchange rates. We consider both in-sample and out-of-sample tests. One hypothesis that is consistent with our findings is that real disturbances (such as productivity shocks) may be a major source of exchange rate volatility. [ABSTRACT FROM AUTHOR]

Currency call option transactions data and the Black-Scholes option pricing model, as modified by Merton for continuous dividends and as adapted to currency options by Biger and Hull and by Garman and Kohlhagen, are used to imply spot foreign exchange rates. The proportional deviation between implied and simultaneously observed spot rates is found to be a direct and statistically significant determinant of subsequent returns on foreign currency holdings after controlling for interest rate differentials. Further, an ex ante trading rule reveals that the additional information contained in implied rates often is sufficient to generate significant economic profits. [ABSTRACT FROM AUTHOR]

In February 2021, the industrial confidence indicator increased by 2.4 in the EU27 and by 2.8 in the euro area (EA19). These declines follow a strong rebound in the third quarter of 2020 (+ 12.4% in the EA19 and + 11.5% in the EU27) and the sharp decreases in the second quarter of 2020 (- 11.7% in the EA19 and - 11.4% in the EU27). The consumer confidence indicator also increased by 0.8 in the EU27 and by 0.7 in the EA19 in February 2021. [Extracted from the article]

The article investigates the monetary and fiscal policy under fixed and flexible exchange rates in the inter-run. One of the article's findings is that when the foreign interest rate is less than or equal to growth rate, fiscal expansion causes output to increase by at least as much under flexible rates as under fixed. Another finding was when domestic and foreign interest rates and the rate of growth of effective labor differ, then monetary and fiscal policy have uncertain effects on the balance of payments under fixed rates, and the exchange rate under flexible rates.

The author comments on the paper "Private and Official International Money: The Case for the Dollar," by R. I. McKinnon, concerning fixed exchange rates. He states that the United States has no balance-of-payments constraints as U.S. policy conduct does not consider it relevant whether the world is on a fixed or flexible system. He suggests that reserve outflows will result from excess credit expansion, and that the U.S. deficit appears to be endogenous. He states that the U.S. needs to maintain stable growth with a minimum of inflation in order for fixed rate systems to operate successfully. He claims that the U.S. dollar would be international money even under flexible exchange rates.

The article focuses on monetary policy and exchange-rate flexibility. It states that it is best to view exchange-rate policy as one facet of the monetary policy of a country. It mentions that as of 1971, the U.S. dollar acted as an international standard for currency. It comments on gold standards and the unimportance of gold in determining relative currency values. It mentions that the trade-off between increases in the supply of money and decreases in interest rates is fading in bond markets, with bond holders demanding and receiving premiums for expected rates of price inflation. It states that fixed exchange rates cannot handle longer-run secular imbalances and suggests that they need to be distinguished from short-run cyclical instability.

The article presents information on the relation between economic growth and a variety of monetary variables, by means of cross-section data comprising 43 countries for periods from five to ten years. The author explains that monetary variables include international assets of the banking system in relation to foreign trade, to money, and the international reserve position. The author states that the real growth of the gross national product each year is an unstable variable that can become negative for some countries.

In an unstable economy, expectations of changes in price level and rate of exchange play a significant role in motivating the economic behavior of both households and firms. Several econometric studies attempted to predict future expectations on the basis of past observations. Such studies, however, are crucially dependent on the assumptions (1) that there has been a relationship between past performance and expectations, and (2) that the nature of this relationship is known. Another method for the estimation of expectations is the one which derives these expectations on the basis of the price structure of future markets. However, an examination of specific commodities traded on future markets does not provide meaningful estimates, since their future prices reflect, among other things, expected changes in relative prices. This problem can be circumvented by referring to future interest rates which can be derived from the market price structure of financial assets. This paper sets out the theoretical relationship between yields on unlinked and linked bonds, showing that it reflects market expectations of future rates of change in price level and exchange rate. A model is then used to show theoretically that it is possible to derive estimations of market expectations regarding such future rates of change by comparing the yields of unlinked bonds with the yields of bonds linked to the price level and the foreign exchange rate respectively, provided these bonds are identical in all other respects. [ABSTRACT FROM AUTHOR]

This paper discusses whether monetary policy at the effective lower bound (ELB) is less effective, generates greater international spillovers, or is "stickier" than conventional monetary policy. It argues that monetary policy at the ELB can be potent and that there has thus far been no convincing evidence that it has greater international spillovers through capital flows and exchange rates than comparable adjustments in interest rates. It may be more challenging to raise rates off the ELB than to raise rates from higher levels--possibly due to counterbalancing effects through the exchange rate--although there are only anecdotes to support this stickiness rather than any formal, empirical evidence. [ABSTRACT FROM AUTHOR]

Copyright of Research Papers of the Wroclaw University of Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu is the property of Uniwersytet Ekonomiczny we Wroclawiu and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Selcuk University Social Sciences Institute Journal is the property of Selcuk University Social Sciences Institute Journal and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The paper analyzes and compares the effects of domestic monetary policy using DSGE, DSGE-VAR, and VAR based on a two-country open economy model of Korea and the U.S. According to impulse response analysis, a domestic interest rate hike raises won value in the case of DSGE and DSGE-VAR models, while in the case of the unrestricted VAR model, it lowers won value. In the marginal data density standard, DSGE-VAR (µ=1) is superior to DSGE or Bayesian VAR over the sample period. Conversely, in the in-sample RMSE criterion, especially for the won/dollar exchange rate, VARs are superior to DSGE or DSGE-VAR. It is necessary to study further if these differences are caused by model misspecification or omitted variable bias. [ABSTRACT FROM AUTHOR]

The paper shows that currencies of countries with persistent current account surpluses and high foreign-currency denominated assets, such as the Swiss franc and the Japanese yen, are under persistent appreciation pressure, particularly when the centres of the world monetary system follow expansionary monetary policies. This limits the choice of exchange rate regime. Given flexible exchange rates, a negative risk premium on the domestic interest rate can emerge. Empirical estimations provide mixed evidence for a negative impact of net foreign asset positions and exchange rate uncertainty on interest rates of international creditor countries at the periphery of the world monetary system. [ABSTRACT FROM AUTHOR]

The article reports that according to a research changes in real interest rates and the money supply influence commodity prices. Topics discussed include information on interrelationships between interest rates and exchange rates; information on increase in foreign purchases of U.S. assets along with higher level of the U.S. interest rates; and strategies adopted by the U.S. Federal Reserve for normalizing its balance sheet.

Developing countries in general need flexibility and a sufficient number of instruments to prevent excessive volatility. Evidence does not support the orthodox belief that, with free floating, international financial markets will perform that role by smoothly adjusting exchange rates to their "equilibrium" level. In reality, exchange rates under a floating regime have proved to be highly unstable, leading to long spells of misalignment. The experience with hard pegs has not been satisfactory either: the exchange rate could not be corrected in cases of external shocks or misalignment. Given this experience, "intermediate" regimes are preferable when there is instability in international financial markets. [ABSTRACT FROM AUTHOR]

Participation in the exchange rate mechanism ERM II (one of the Maastricht criteria - exchange rate stability) is compatible with certain exchange rate regimes only. The aim of this paper is to find arguments for choosing one of these regimes. The starting point is the current strategy of the euro introduction in the Czech Republic, and the expressed concerns about the risks associated with fixing of the exchange rate. The used method is analysis of data on the currency participation in ERM II and searching for analogies of Czech koruna. The analysis consists of the identification of exchange rate regimes used before and after ERM II so that to determine the duration of ERM II involvement. Fixing of the exchange rate in the regime peg with a band of oscillation of 15% in both directions is the working hypothesis. Criteria of the so-called normal fluctuations margins and the so-called severe tension are also discussed. Development trend of the CZK/EUR exchange rate is examined. The outcome of the research is finding the risks associated with this exchange rate regime. It is the risk of a narrow fluctuation band (2.25%) in depreciation direction and the risk in the form of foreign exchange intervention or interest rate differential at excessive appreciation of the exchange rate. [ABSTRACT FROM AUTHOR]

ABSTRACT: Recent literature has established a link between the persistence of real exchange rates and the degree of inertia in Taylor rule monetary policy reactions functions. This paper provides a different view on this link by investigating how the size of Taylor rule reaction coefficients impacts the adjustment dynamics of the real exchange rate. Within a stylized sticky‐price open‐economy macro model, it is demonstrated that a stronger interest rate reaction to inflation in the Taylor rule raises the convergence speed of the real exchange rate. Conversely, raising the coefficient on the output gap or attending to the exchange rate in an open‐economy version of the Taylor rule slows down real exchange rate adjustment. In all cases, more rapid convergence comes at the cost of stronger initial real exchange rate misalignments in the wake of monetary policy shocks. [ABSTRACT FROM AUTHOR]

We use the wavelet coherency analysis in order to investigate the relationship between the exchange rate changes and its major financial determinants for selected emerging economies. Our analysis shows that the changes in exchange rate are correlated with interest rate differentials, risk premium, the FED's monetary policy implementation and its policy uncertainty. Moreover, the co-movement between the exchange rate changes and its financial determinants substantially changes across frequencies and over time. The co-movement patterns also vary to a large extent across “fragile” emerging markets. Finally, the strongest co-movement of exchange rate changes is with the risk premium in all countries. [ABSTRACT FROM AUTHOR]

Lack of intrinsic value, hybrid nature of commodities and recent financialization of commodity markets make of understanding precious metals price moves complicated. Predicting future development of precious metals market can be more feasible if we discover what drives these markets and describe nature of the drivers. The aim of the paper is to explain metal price movements by assessing an impact of multiple economic and financial factors. Based on the literature review we study 8 possible macroeconomic and financial drivers. The data are collected from Bloomberg. We use mixed-data-sampling methodology that enables me to study drivers of various frequencies (daily and monthly) simultaneously in a single model. Results show that the interest rate, the exchange rate, stock levels, stock index returns and crude oil returns are generally significant to drive precious metal markets. The stock index has the most significant impact on the metals returns that is negative. Furthermore, the results divide precious metals into two groups with gold and silver on the one hand and platinum and palladium on the other. The first group is worse explained by considered drivers. Moreover, the interest rate does not have any impact on the price development of gold and silver and crude oil returns influence the pair negatively, contrary to the second pair of platinum and palladium. [ABSTRACT FROM AUTHOR]

Interest rates are currently very low in the countries. In these countries bonds are issued with low or negative yields. In this paper, I empirically investigate the factors that affect the price of bonds. I follow international arbitrage pricing theory to determine the relationship between factors and the price of bonds. The international arbitrage pricing theory applies a multi-linear regression model. The regression model is used for emerging markets and developing markets separately. I have a unique data set of 46 countries. The main data are the monthly returns on government bonds in the period 2010 - 2015. Exchange risk influences the bond prices. Currency movements can bring further yield for investors. [ABSTRACT FROM AUTHOR]

Copyright of International Economics / Economia Internazionale is the property of Camera di Commercio di Genova and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Background: This paper examines the role of monetary and fiscal factors in interest rate variations in Sri Lanka under its deregulated regime of interest rates. In addition the paper also examines the role of monetary factors in the variation of interest rates, using a quarterly dataset for the post-global recession period, when the exchange rate is determined by market forces. Results: Empirical analysis uses a dataset of nominal interest rates, money growth, income growth, changes in nominal exchange rate, and budget deficit. From the methodological point of view the paper involves vector autoregression model and Wald tests of Granger causality, followed by impulse response analysis while stationarity and the order of integration of the selected variables are confirmed involving the augmented Dickey-Fuller and the Phillips-Perron unit-root tests. Results: The paper confirms that both monetary and fiscal factors have significant effects on the variations of interest rates. Money growth triggers an increase in interest rates, which supports the Fisher equation view, while income growth has a negative impact. Budget deficit causes a rise in interest rates, but the role of the exchange rate is found to be almost insignificant, probably due to including exchange rate series that cover both the pegged and market-based regimes of exchange rates. The second part of the analysis, using a quarterly dataset for the post-global recession period, further establishes the positive impact of M2 money growth and income growth on interest rates. In this case, exchange rate depreciation causes an increase in interest rates. Conclusions: The significant role of monetary and fiscal factors in interest rate variations implies it would be possible to manage interest rates through a judiciary management of monetary and fiscal policies. [ABSTRACT FROM AUTHOR]

DeMiguel et al. [DeMiguel V, Garlappi L, Uppal R (2009) Optimal versus naïve diversification: How inefficient is the 1/ N portfolio strategy? Rev. Financial Stud. 22(5):1915-1953] showed that in the stock market, it is difficult for an optimized portfolio constructed using mean-variance analysis to outperform a simple, equally weighted portfolio because of estimation error. In this paper, we demonstrate that portfolio optimization can be made to work in currency markets. The key difference between the two settings is that in currency markets interest rates provide a predictor of future returns that is free of estimation error, which permits the application of mean-variance analysis. We show that over the last 26 years, a mean-variance efficient portfolio constructed in this fashion has a Sharpe ratio of 0.91, versus only 0.15 for the equally weighted portfolio. We also consider the practical implementation of this strategy. This paper was accepted by Neng Wang, finance. [ABSTRACT FROM AUTHOR]

Aim/purpose - The aim of this article is to present two cases of exchange rate controls in Switzerland and Argentina. The paper also examines the problem of presence and evaluation of shadow exchange rate in both countries. Design/methodology/approach - The shadow exchange rates are estimated using speculative pressure index concept that emphasizes the importance of not only exchange rate movements but also changes in foreign exchange reserves as well as interest rate differentials. The research sample covers Switzerland 2001-2016 and Argentina 2006-2016 (for shadow exchange rate simulation: 2011-2014 and 2011-2015, respectively). Findings - The conclusions drawn from international experience and conducted empirical analysis are positive. In both cases, shadow exchange rates were close to market rates after the removal of controls. During the restrictions periods shadow rates followed the intuition given by speculative pressure index concept (and by monetary approach, simultaneously). Research implications/limitations - The research suggests that market forces in both countries were still able to restore exchange rates to market values after the period of control. However, it is obvious that it is very difficult to prove that shadow rates were always determined by economical forces and close to their long-term equilibrium values. Originality/value/contribution - The original approach combines two important economic concepts - the idea of shadow exchange rate and the methodology of index of speculative pressure. Combined together they can help to analyze two interesting and relatively new cases of foreign exchange controls in Switzerland and Argentina. The results can be valuable for economists, researchers and politicians who support or reject the idea of controlling macroeconomic parameters in modern, open economy. [ABSTRACT FROM AUTHOR]

This paper examines the international spillover effects of China's monetary policy shock on macro and financial variables in 26 countries along the Belt and Road (B&R) from 2000 to 2019. We find that a surprise Chinese monetary tightening brings about a widening in the short-term interest rate spread, a drop in the equity price, nominal depreciation against the RMB and real depreciation, and an improvement in the trade balance, on average, across the 26 B&R countries. Moreover, substantial heterogeneous effects emerge in the responses of the foreign real exchange rate and the trade balance in different groups in terms of the 26 countries' trade weights with China, capital openness, and national income levels. Finally, all the empirical evidence reveals that the expenditure switching effect plays an important role in facilitating the international transmission of China's monetary policy shock. • Estimates China's monetary policy shock series via a large Bayesian VAR model. • Examines the cross-border transmission of the shock via local projections. • Finds significant spillover effects of China' monetary policy shock abroad. • Finds heterogeneities in the spillover effects for different country groups. • Finds the expenditure switching effect is key in the monetary policy transmission. [ABSTRACT FROM AUTHOR]

The long and persistent swings in the real exchange rate have for a long time puzzled economists. Recent models built on imperfect knowledge economics seem to provide a theoretical explanation for this persistence. Empirical results, based on a cointegrated vector autoregressive (CVAR) model, provide evidence of error-increasing behavior in prices and interest rates, which is consistent with the persistence observed in the data. The movements in the real exchange rate are compensated by movements in the interest rate spread, which restores the equilibrium in the product market when the real exchange rate moves away from its long-run benchmark value. Fluctuations in the copper price also explain the deviations of the real exchange rate from its long-run equilibrium value. [ABSTRACT FROM AUTHOR]

This study explores the macroeconomic determinants of the 'net errors and omissions' behaviour in balance of payment accounts. Two empirical equations are being estimated as suggested by the balance of payments constraint, and income-expenditure approach, respectively. This study finds that GDP, interest rate, and exchange rate are the important factors explaining the Australian 'net errors and omissions'. Causality tests have recognized the possible transmission channels. This study can be considered a new perspective in this topic and reference for further research. [ABSTRACT FROM AUTHOR]

Foreign currency debt provides additional access to capital and offers funds in favorable and flexible terms to microfinance institutions (MFIs). Yet, we find that the use of foreign currency debt, on average, leads to higher microcredit interest rates. We also find that MFIs operating in countries with pegged exchange rate regimes and profit MFIs are better able to mitigate foreign currency risk. The results of the paper suggest that local currency debt is a better option for MFIs if the goal is to provide microcredit at lower interest rates. [ABSTRACT FROM AUTHOR]

Issues on exchange rate movement have continued to generate concern among economists given its implication on the macroeconomic variables - inflation, imports, domestic interest rate and investment among others. Although studies have examined the determinants of exchange rate movement, there is paucity of knowledge on the relationship between fiscal policy and exchange rate movement. Also, both theoretical and empirical literatures on fiscal policy and exchange rate movement were inconclusive. Therefore, this study examines the relationship between fiscal policy and exchange rate movement in Nigeria for the period 1980 to 2015. The study employed the Ordinary Least Square (OLS) and the regression estimate showed that fiscal policy variables were statistically significant in influencing exchange rate in Nigeria. This suggests that fiscal policy variables are significant determinants of exchange rate movement in Nigeria. Based on the findings, it was recommended that there is the need for prudent management of revenue, expenditure and debt in reducing exchange rate depreciation and ensuring stable exchange rate. [ABSTRACT FROM AUTHOR]

A major gap in our understanding of the medieval economy concerns interest rates, especially relating to commercial credit. Although direct evidence about interest rates is scattered and anecdotal, there is much more surviving information about exchange rates. Since both contemporaries and historians have suggested that exchange and rechange transactions could be used to disguise the charging of interest in order to circumvent the usury prohibition, it should be possible to back out implied interest rates from exchange rates. The analysis presented in this article is based on a new dataset of medieval exchange rates collected from commercial correspondence in the archive of Francesco di Marco Datini of Prato, c. 1383-1411. It demonstrates that the time value of money was consistently incorporated into market exchange rates. Moreover, these implicit interest rates are broadly comparable to those received from other types of commercial loan and investment. Although on average profitable, the return on any individual exchange and rechange transaction did involve a degree of uncertainty that may have justified their non-usurious nature. However, there were also practical reasons why medieval merchants may have used foreign exchange transactions as a means of extending credit. [ABSTRACT FROM AUTHOR]

We analyze conventional and unconventional monetary policies in a dynamic small open-economy model with financial frictions. In the model, financial intermediaries or banks borrow from the world market and lend to domestic households. Banks can borrow abroad up to a multiple of their equity; in turn, there is a limit to how much bank equity households can hold. The combination of external and domestic frictions results in an economy-wide credit constraint and an endogenous interest rate spread. It also magnifies the amplitude and persistence of aggregate responses to exogenous shocks. In response to external balance shocks, fixed exchange rates are contractionary and flexible exchange rates expansionary (although less so in the presence of currency mismatches); the opposite is true in response to increases in the world interest rate. Unconventional policies, including central bank direct credit, discount lending, and equity injections to banks, have real effects only if financial constraints bind. Because of bank leverage, central bank discount lending and equity injections are more effective than direct credit. Sterilized foreign exchange intervention is equivalent to lending directly to domestic agents. Unconventional policies are feasible only to the extent that the central bank holds a sufficient amount of international reserves. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to examine the impacts of the real exchange rate, the government deficit and other relevant variables on aggregate output in Slovenia. Few of the previous studies have applied the AD/AS model to examine the impacts of major macroeconomic variables on aggregate output. This paper makes contributions to the literature by applying a rigorous model to examine how real GDP is affected by the real exchange rate, fiscal policy and other related variables. The exponential GARCH model is applied in empirical work. The paper finds that real depreciation of the Euro may affect Slovenia's aggregate output positively or negatively and that more central government deficit as a percent of GDP does not affect aggregate output. In addition, Slovenia's aggregate output is positively associated with the real stock price, the real oil price and real total labor cost or wage and is negatively influenced by the real lending rate and the expected inflation rate. Recent real depreciation of the Euro would help Slovenia's aggregate output whereas expansionary fiscal policy would not be effective in stimulating the economy. [ABSTRACT FROM AUTHOR]