Interest rate co-movements, global factors and the long end of the term spread

The disconnect between rising short and low long interest rates has been a distinctive feature of the 2000s. Both research and policy circles have argued that international forces, such as global monetary policy (e.g. Rogoff, 2006); international business cycles (e.g. Borio and Filardo, 2007); or a global savings glut (e.g Bernanke, 2005) may be responsible. In this paper, we employ recent advances in panel data econometrics to document the disconnect and link it explicitly to the existence of a global latent factor that dominates the long end of the term spread for the recent period; the saving glut story emerges as the most likely contender for the global factor

The instability of the money demand function: an I(2) interpretation

Some studies have suggested that although money and prices appear to be I(2) processes, real money balances are I(1) and this transformation preserves an important long-run relationship between money and prices. In this paper we present evidence indicating that the success of such a nominal-to-real transformation depends upon the particular monetary aggregate under consideration. It turns out that imposing long-run price homogeneity does not remove all I(2) components from a model of aggregate broad UK M4, but it does prove successful in the case of sectoral components of M4. Since recent research on money demand functions finds more stable relationships between sectoral components of M4 and aggregate demand, our analysis seems to point to a direct link between the existence of I(2) components and the stability of different money demand functions

Towards the fundamentals of technical analysis: analysing the information content of high, low and close prices

Technical analysis assigns a special importance to the Open, High, Low and Close prices in forecasting the mean and volatility of exchange rates. In this paper we propose to investigate the time series properties and the informational content of these different prices, using range and cointegration methods. The application of these methods to a high frequency data set indicates the existence of stable structural relationships and asymmetric information flows, which is supportive of certain predictions of market microstructure models of the foreign exchange market. In sum, we argue that a technical analysis of High, Low and Close prices is a useful way of learning about latent Granger causality in high frequency exchange rates

Unemployment and unemployment insurance

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