Uncovered interest rate parity redux: Non-uniform effects

Cheung, Yin‐Wong; Wang, Wenhao

doi:10.1016/j.jempfin.2022.03.008

Cited by 5 publications

(2 citation statements)

References 114 publications

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“…The result supports the hypothesis of the great financial cycle of Rey (2015b). Although it is plausible that the factor structure remained consistent in time, evidence in the behavior of Libor and Government Cross-currency Basis in Du et al (2018) as well as the results in Bussière, Chinn, Ferrara, and Heipertz (2022), Cheung and Wang (2022), Engel, Kazakova, Wang, and Xiang (2022), and Lilley et al (2022, suggest the existence of a structural change in the behavior of exchange rates after the Financial Crisis of 2007. That is why I applied the methodology of Barigozzi et al (2018) that determines the existence of breaks in the general factor structure of the series, in this case, the F ′ a,t in equation 1.1.…”

Section: Measuring Exchange Rate Uncertaintysupporting

confidence: 77%

Essays in International Finance

Fernandez Mejia

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Preceding the global financial crisis, the 1990s witnessed a series of currency crises alongside the formation of the European Union. These events fostered a trend towards market lib-eralization, facilitating the capital flows of different types of assets. many nations adopted floating exchange rates to grant increased autonomy to their Central Banks, consequently al-tering monetary policy regimes. This evolution in exchange rate mechanisms was intricately linked to the expanding global trade and financial markets. The returns and volatility of these markets became crucial tools for policymakers, not solely in managing international trade but also in forecasting capital flow behaviors within the countries. As a result, exchange rates began to influence not only trade dynamics but also the vulnerability of economies to external shocks from the global international financial markets. In this thesis, I present three chapters that explore the determinants, behaviors, and consequences of foreign exchange rate fluctuations on the economy. It focuses on interest rate parity deviations, extreme movements, and responses in capital flows. As part of the research, I investigate stablecoins, digital currencies designed to streamline transactions and overcome the volatility constraints of traditional exchange rates. These investigations align closely with the research agendas of International Finance and Financial Economics, offering valuable insights for academics, policymakers, and industry practitioners. The research employs modern econometric methods to analyze the fluctuations of both traditional and electronic currencies, revealing their sensitivity to external and internal factors. It also offers insights for establishing an efficient stabilization mechanism within the context of macroprudential policies.

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Section: Measuring Exchange Rate Uncertaintysupporting

confidence: 77%

Essays in International Finance

Fernandez Mejia

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“…It can be noted that all three above strategies share however a fundamental common assumption, i.e. that the Uncovered Interest Parity condition is violated (see Cheung and Wang, 2022;Engel et al, 2022, for the most recent evidence on the "Fama puzzle"), since under this condition exchange rate movements would offset forward premia and there would be no profitable opportunities.…”

Section: Portfolio Constructionmentioning

confidence: 99%

Boosting Carry with Equilibrium Exchange Rate Estimates

et al. 2022

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Boosting Carry with Equilibrium Exchange Rate Estimates

Rubaszek,

Beckmann,

Ca’ Zorzi

et al. 2024

Open Econ Rev

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We construct currency portfolios based on the premise that exchange rates gradually converge toward their equilibrium levels, yielding three key findings. First, this convergence can be leveraged to build profitable portfolios. Second, the slow rate of convergence over shorter horizons aligns with the sustained profitability of carry trade strategies, where investors borrow in low-yield currencies and invest in high-yield ones. Third, incorporating the predictive insights of equilibrium exchange rates can boost the performance of carry trade strategies.

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Uncovered interest rate parity redux: Non-uniform effects

Cited by 5 publications

References 114 publications

Essays in International Finance

Essays in International Finance

Boosting Carry with Equilibrium Exchange Rate Estimates

Boosting Carry with Equilibrium Exchange Rate Estimates

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