Exchange-Rate Dynamics: An Empirical Investigation

Driskill, Robert

doi:10.1086/260969

Cited by 92 publications

(28 citation statements)

References 6 publications

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“…The works of Frankel (1979), Driskill (1981), and Papel (1998) provide the overshooting model, while Backus (1981) and Flood and Taylor (1996) do not. Hairault et al (2004) finds that an expansionary monetary policy implies an increase in interest rate and a depreciation of the exchange rate.…”

Section: Literature Reviewmentioning

confidence: 99%

The Linkages of Financial Liberalization and Currency Stability: What do We Learn From Pre and Post Asian Financial Crisis?

Pratomo¹,

Suwandi²,

Warokka³

2013

JESR

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The tendency of repeating history has made any financial crisis a valuable source to be explored and studied. It will make people be more prepared and ready to anticipate. This paper examined the nature of linkages between exchange rate and macroeconomic fundamentals over [1997][1998][1999][2000][2001][2002][2003][2004]. It investigated the evidence on both the short-and long-run effects of exchange rate determinant factors using co-integration theory. It also explored the stability of rupiah during the pre and post economic crisis, seeking whether the Indonesian currency was overshooting or not. To test the stability of rupiah after monetary and fiscal liberalization, we employed the Chow test. The results revealed that the rupiah was overshooting during the crisis' period and there was a structural change of rupiah after 1998. Due to the significant effects of interest rate and exchange rate on the currency stability, it is important to the Indonesia's monetary institution to be aware of these two variables, especially in stabilizing the economic performance after the financial liberalization. The elasticity obtained for relative money supply (m) is greater than unity indicating that this result consistent with overshooting hypothesis.

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Section: Literature Reviewmentioning

confidence: 99%

The Linkages of Financial Liberalization and Currency Stability: What do We Learn From Pre and Post Asian Financial Crisis?

Pratomo¹,

Suwandi²,

Warokka³

2013

JESR

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“…Papers using models with this underlying structure include Black (1973Black ( , 1985, Driskill (1981), Driskill and McCafferty (1980a,b, 1982, 1987, Driskill et al (1992), Osler (1995Osler ( , 1998, Carlson and Osler (2000), and Hau and Rey (2004). The model is consistent with flow exchange-rate models used in Phillips and Pippenger (1993) and Pippenger (2003).…”

Section: A Microstructure-consistent Modelmentioning

confidence: 99%

Macro lessons from microstructure

Osler

2006

Int. J Fin Econ

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Empirical research on the microeconomics of currency markets, an area known sometimes as 'currency market microstructure,' has taken off in the past decade. This paper extracts from this research four lessons for modelling short-run exchange-rate dynamics. First, currency flows are a key determinant of exchange rates, and models should have these flows fully in focus. The appropriate equilibrium condition may be flow-currency supply equals flow-currency demand. Second, the flows of first-order relevance include those of 'financial' traders, who use currencies essentially as a store of value, and 'commercial' traders, who use currencies as a medium of exchange. Financial flows and commercial flows should be negatively related to each other, meaning that financial demand tends to be met by commercial supply. Also, financial flows should be positively related to exchange rates. Third, financial traders are motivated by profits, rather than consumption, and behave as if risk averse. Fourth, commercial traders are motivated by exchange-rate levels and rationally choose not to speculate. The workhorse models of international macroeconomics do not fit most of these lessons, and these important lacunae in their microfoundations may help explain their limited empirical success. The paper sketches an optimizing model of currency flows that is consistent with the lessons and has an encouraging empirical record. Copyright © 2006 John Wiley & Sons, Ltd.

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“…Uncovered interest parity is thus assumed to hold along with conditions of purchasing power parity (PPP). The fixed-price monetary approach developed by Dornbusch (1976), Frankel (1979) and Drisltell (1981) relaxes the 1988 ASSETS MAKKETS, CURRENT ACCOUNT, E X C H A N G E RATE DETERMINATION 2 15 assumption that PPP obtains in the short run. In addition, the portfolio-balance model developed by Branson (1977) and Kauri and De Macedo (1978) relaxes the assumption that non-money assets are perfect substitutes.…”

Section: The M O D~-lmentioning

confidence: 99%