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Exchange Rate Determination Puzzle - Long Run Behavior and Short Run Dynamics

Diplomarbeit 2009 117 Seiten

VWL - Makroökonomie, allgemein

Zusammenfassung

Inhaltsangabe:Introduction:
As the foreign exchange rate market operates twenty-four hours a day and seven days a week it can be described as a global marketplace trading in continuous time. The importance of this market place on weal and woe of economies and agents cannot be overestimated. Long lasting disputes about exchange rate over- and under-evaluation between countries (as most prominently the case between China and the USA) and its implications for international trade, growth rates of economies, unemployment levels, financial money flows, and so forth illustrate this point.
As reported by the Bank of International Settlement in its triennial Central Bank Survey 2007, covering 54 countries and jurisdictions, the daily average foreign exchange turnover as of April 2007 has reached a mind-staggering $3.21 trillion. This amount marks an increase of 69 percent compared to the $1.97 trillion three years earlier and highlights the still increasing importance of the exchange rate markets. The U.S. dollar is by far the most important currency as it is involved in 86 percent of all transactions amounting to some $2.7 trillion per day. This is by far bigger than the volume of U.S. international trade in goods and services which for the month April 2007 amounted to (imports + exports) $317.5 billion.1 Indeed, only 17 percent of exchange market turnover has been reported to occur with non-financial customer counterparties, while 43 percent of transactions occur between reporting dealers (i.e. the interbank market) and 40 percent occur between reporting and non-reporting financial institutions (e.g. hedge funds, mutual funds, pension funds, insurance companies). Accordingly, more than 2/3 of the turnover was traded as derivatives such as foreign exchange swaps, outright forwards, or options, while only 1/3 constituted spot rate transactions.
These are important facts to consider when talking about forces of exchange rate determination. On ground of these figures one may reasonably explain why old-fashion standard models like the monetary model or purchasing power parity may only hold in the very long run and exchange rate movements may be much more subject to trades based on heterogeneous expectations incurred by investors, speculators and market makers. Particularly at the short-run exchange rates exhibit considerably greater volatility than macroeconomic time series leaving an impression of noisy and chaotic behavior.
Throughout this work it […]

Details

Seiten
117
Erscheinungsform
Originalausgabe
Jahr
2009
ISBN (eBook)
9783836632188
Dateigröße
2.2 MB
Sprache
Englisch
Katalognummer
v226999
Institution / Hochschule
Johann Wolfgang Goethe-Universität Frankfurt am Main – Wirtschaftswissenschaften, Studiengang Volkswirtschaftslehre
Note
1,3
Schlagworte
monetary exchange rate model order flow long behavior short dynamics uncovered equity parity

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Titel: Exchange Rate Determination Puzzle - Long Run Behavior and Short Run Dynamics