International investment positions and exchange rate dynamics : a dynamic panel analysis

In this paper we revisit medium- to long-run exchange rate determination, focusing on the role of international investment positions. To do so, we develop a new econometric framework accounting for conditional long-run homogeneity in heterogeneous dynamic panel data models. In particular, in our model the long-run relationship between effective exchange rates and domestic as well as weighted foreign prices is a homogeneous function of a country’s international investment position. We find rather strong support for purchasing power parity in environments of limited negative net foreign asset to GDP positions, but not outside such environments. We thus argue that the purchasing power parity hypothesis holds conditionally, but not unconditionally, and that international investment positions are an essential component to characterizing this conditionality. Finally, we adduce evidence that whether deterioration of a country’s net foreign asset to GDP position leads to a depreciation of that country’s effective exchange rate depends on its rate of inflation relative to the rate of inflation abroad as well as its exposure to global shocks. JEL Classification: F31, F37, C2

International Investment Positions and Exchange Rate Dynamics: A Dynamic Panel Analysis

In this paper we revisit medium- to long-run exchange rate determination, focusing on the role of international investment positions. To do so, we develop a new econometric framework accounting for conditional long-run homogeneity in heterogeneous dynamic panel data models. In particular, in our model the long-run relationship between effective exchange rates and domestic as well as weighted foreign prices is a homogeneous function of a country’s international investment position. We find rather strong support for purchasing power parity in environments of limited negative net foreign asset to GDP positions, but not outside such environments. We thus argue that the purchasing power parity hypothesis holds conditionally, but not unconditionally, and that international investment positions are an essential component to characterizing this conditionality. Finally, we adduce evidence that whether deterioration of a country’s net foreign asset to GDP position leads to a depreciation of that country’s effective exchange rate depends on its rate of inflation relative to the rate of inflation abroad as well as its exposure to global shocks.exchange rate determination, international financial integration, dynamic panel data models

International investment positions and exchange rate dynamics: a dynamic panel analysis

In this paper we revisit medium- to long-run exchange rate determination, focusing on the role of international investment positions. To do so, we develop a new econometric framework accounting for conditional long-run homogeneity in heterogeneous dynamic panel data models. In particular, in our model the long-run relationship between effective exchange rates and domestic as well as weighted foreign prices is a homogeneous function of a country's international investment position. We find rather strong support for purchasing power parity in environments of limited negative net foreign asset to GDP positions, but not outside such environments. We thus argue that the purchasing power parity hypothesis holds conditionally, but not unconditionally, and that international investment positions are an essential component to characterizing this conditionality. Finally, we adduce evidence that whether deterioration of a country's net foreign asset to GDP position leads to a depreciation of that country's effective exchange rate depends on its rate of inflation relative to the rate of inflation abroad as well as its exposure to global shocks. --Exchange Rate Determination,International Financial Integration,Dynamic Panel Data Models

International Investment Positions and Exchange Rate Dynamics

We revisit medium- to long-run exchange rate determination, focusing on the role of international investment positions. To do so, we make use of a new econometric framework accounting for conditional long-run homogeneity in heterogeneous dynamic panel data models. In particular, in our model the long- run relationship between effective exchange rates and domestic as well as weighted foreign prices is a homogeneous function of a country's international investment position. We find rather strong support for purchasing power parity in environments of limited negative net foreign asset to GDP positions; furthermore, long-run exchange rate equilibria may have little relation to purchasing power parity outside such environments. We thus argue that the purchasing power parity hypothesis holds conditionally, but not unconditionally, and that international investment positions are an essential component to characterizing this conditionality

a Conditional GVAR Approach

We examine the effects of increased international integration of both goods and financial markets on business cycle dynamics. To do so, we develop a new econometric framework for modelling cross-country spillovers in which the magnitude of these spillovers is an empirically determined function of the degree of a country's integration with international goods and financial markets. Our results suggest that the magnitude of cross-country spillovers for most country pairs has been increasing with strengthened goods and financial markets integration

Static and Dynamic Critical Behavior of a Symmetrical Binary Fluid: A Computer Simulation

A symmetrical binary, A+B Lennard-Jones mixture is studied by a combination of semi-grandcanonical Monte Carlo (SGMC) and Molecular Dynamics (MD) methods near a liquid-liquid critical temperature $T_c$. Choosing equal chemical potentials for the two species, the SGMC switches identities (${\rm A} \to {\rm B} \to {\rm A}$) to generate well-equilibrated configurations of the system on the coexistence curve for $T<T_c$ and at the critical concentration, $x_c=1/2$, for $T>T_c$. A finite-size scaling analysis of the concentration susceptibility above $T_c$ and of the order parameter below $T_c$ is performed, varying the number of particles from N=400 to 12800. The data are fully compatible with the expected critical exponents of the three-dimensional Ising universality class. The equilibrium configurations from the SGMC runs are used as initial states for microcanonical MD runs, from which transport coefficients are extracted. Self-diffusion coefficients are obtained from the Einstein relation, while the interdiffusion coefficient and the shear viscosity are estimated from Green-Kubo expressions. As expected, the self-diffusion constant does not display a detectable critical anomaly. With appropriate finite-size scaling analysis, we show that the simulation data for the shear viscosity and the mutual diffusion constant are quite consistent both with the theoretically predicted behavior, including the critical exponents and amplitudes, and with the most accurate experimental evidence.Comment: 35 pages, 13 figure