Interest Rate Arbitrage in Currency Baskets: Forecasting Weights and Measuring Risk

Christoffersen, Peter; Giorgianni, Lorenzo

doi:10.5089/9781451843385.001

Cited by 4 publications

(4 citation statements)

References 23 publications

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“…Also see Diebold and Pauly (1990). Christofferson and Giorgianni (2000) develop a methodology for extracting time‐varying weights used in constructing basket currencies (where the weights are not publicly known) and show how to account for the risk that time‐varying weights add to the standard basket‐hedge position.…”

mentioning

confidence: 99%

Identifying the Common Component of International Economic Fluctuations: A new Approach

Lumsdaine

Prasad

2002

The Economic Journal

148

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu IZA DP No. 487 If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated Identifying the Common Component of International Economic Fluctuations: A New ApproachRobin L. Lumsdaine Eswar S. Prasad The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor markets, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. In this paper, we develop an aggregation procedure using time-varying weights for constructing the common component of international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also accommodates the dynamic propagation of shocks across countries. Based on correlations of individual country fluctuations with the common co...

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mentioning

confidence: 99%

Identifying the Common Component of International Economic Fluctuations: A new Approach

Lumsdaine

Prasad

2002

The Economic Journal

148

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“…2 The cointegrating relationship among non-stationary variables is stable and meaningful in the long-run and deviations from the relationship are stationary because (at least one of) the variables dynamically adjust themselves through time to maintain the relationship once the deviations occur (Engle & Granger, 1987). In the context of the currency basket, the cointegrating relationship is possible because deviations from the basket rate can be mean-reverting (i.e., stationary) as the central bank is expected to control the fluctuation band (Christoffersen & Giorgianni, 2000).…”

Section: Datamentioning

confidence: 98%

U.S. Dollar and Determination of the Renminbi Value: Short-Run and Long-Run Approaches

Phengpis

Swanson

Prombutr

2015

Journal of Asia-Pacific Business

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This article examines the importance of the U.S. dollar relative to other currencies in determining the renminbi value before and after an announcement of the exchange rate regime change by the People's Bank of China. Test results reveal a discernible change in the exchange rate regime after the announcement and varying, yet dominant, weights of the U.S. dollar in the specified currency basket during postannouncement periods. Additionally, the presence and magnitude of the U.S. dollar weight in the long run appear to be related to the extent to which the renminbi fluctuates in the short run against the U.S. dollar.

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“…Empirical papers on the topic include those of Horngren and Vredin (1989) and Christofferson and Giorgianni (1999). Horngren and Vredin (1989), who study the case of Sweden, define basket pegging as systems in which countries tie up their exchange rates to 1 Kuwait is used just as an example.…”

Section: The Literature On Arbitrage and Basket Pegsmentioning

confidence: 99%

“…Another empirical study was conducted by Christofferson and Giorgianni (1999) on the Thai currency basket of January 1992-February 1997. They highlight two issues, which are relevant to this study: (i) calculating the basket weights from historical exchange rate data, and (ii) measuring the conditional variance of the expected profits from the interest arbitrage portfolio when the basket weights are time-varying.…”

Section: The Literature On Arbitrage and Basket Pegsmentioning

confidence: 99%

The profitability of interest arbitrage when the base currency is pegged to a basket

Moosa¹

2010

Rev Quant Finan Acc

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Interest Rate Arbitrage in Currency Baskets: Forecasting Weights and Measuring Risk

Cited by 4 publications

References 23 publications

Identifying the Common Component of International Economic Fluctuations: A new Approach

Identifying the Common Component of International Economic Fluctuations: A new Approach

U.S. Dollar and Determination of the Renminbi Value: Short-Run and Long-Run Approaches

The profitability of interest arbitrage when the base currency is pegged to a basket

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