2,117 research outputs found

    Equity Integration in Japan: An Application of a New Method

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    This paper develops a simple new methodology to test for asset integration and applies it to the Japanese stock market as represented by the Tokyo Stock Exchange (TSE). The technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and comparing expected risk-free rates across assets. Expected risk-free rates are allowed to vary freely over time, constrained only by the fact that they are equal across (risk-adjusted) assets. Assets are allowed to have general risk characteristics, and are constrained only by a factor model of covariances over short time periods. The technique is undemanding in terms of both data and estimation. I find that expected risk-free rates vary dramatically over time, unlike short-term interest rates. Further, the TSE does not always seem to be well integrated in the sense that different portfolios of stocks are priced with different implicit risk-free rates.

    European exchange rate credibility before the fall: the case of sterling

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    European Monetary System (Organization) ; Foreign exchange rates

    After the Deluge: Do Fixed Exchange Rates Allow Inter-Temporal Volatility Tradeoffs?

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    This paper addresses the issue of whether regimes of fixed exchange rates are a mechanism for shifting volatility inter- temporally. Using a panel of data covering twenty industrialized countries from 1959 through 1993, I examine the volatilities of a host of real and monetary variables. Graphical and statistical examination of the periods around 33 flotations and 81 devaluations reveals little evidence of significant increases in volatility following these events.

    One Reason Countries Pay their Debts: Renegotiation and International Trade

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    IMF; sovereignty; trade policy

    A Stable International Monetary System Emerges: Inflation Targeting is Bretton Woods, Reversed

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    A stable international monetary system has emerged since the early 1990s. A large number of industrial and a growing number of developing countries now have domestic inflation targets administered by independent and transparent central banks. These countries place few restrictions on capital mobility and allow their exchange rates to float. The domestic focus of monetary policy in these countries does not have any obvious international cost. Inflation targeters have lower exchange rate volatility and less frequent “sudden stops” of capital flows than similar countries that do not target inflation. Inflation targeting countries also do not have current accounts or international reserves that look different from other countries. This system was not planned and does not rely on international coordination. There is no role for a center country, the IMF, or gold. It is durable; in contrast to other monetary regimes, no country has been forced to abandon an inflation-targeting regime. Succinctly, it is the diametric opposite of the post-war system; Bretton Woods, reversed.

    Does the WTO Make Trade More Stable?

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    I examine the hypothesis that membership in the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT) has increased the stability and predictability of trade flows. I use a large data set covering annual bilateral trade flows between over 175 countries between 1950 and 1999, and estimate the effect of GATT/WTO membership on the coefficient of variation in trade computed over 25-year samples, controlling for a number of factors. I also use a comparable multilateral data set. There is little evidence that membership in the GATT/WTO has a significant dampening effect on trade volatility.

    Size Really Doesn't Matter: In Search of a National Scale Effect

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    I search for a %u201Cscale%u201D effect in countries. I use a panel data set that includes 200 countries over forty years and link the population of a country to a host of economic and social phenomena. Using both graphical and statistical techniques, I search for an impact of size on the level of income, inflation, material well-being, health, education, the quality of a country%u2019s institutions, heterogeneity, and a number of different international indices and rankings. I have little success; small countries are more open to international trade than large countries, but are not systematically different otherwise.

    Cities and Countries

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    If one ranks cities by population, the rank of a city is inversely related to its size, a well-documented phenomenon known as Zipf's Law. Further, the growth rate of a city's population is uncorrelated with its size, another well-known characteristic known as Gibrat's Law. In this paper, I show that both characteristics are true of countries as well as cities; the size distributions of cities and countries are similar. But theories that explain the size-distribution of cities do not obviously apply in explaining the size-distribution of countries. The similarity of city- and country-size distributions is an interesting riddle.

    Explaining Forward Exchange Bias..Intraday

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    Intraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the EMS, we find this prediction is borne out.

    Currency Unions and International Integration

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    This paper characterizes the integration patterns of international currency unions (such as the CFA Franc zone and the East Caribbean Currency Area). We empirically explore different features of currency unions, and compare them both to countries with sovereign monies, and to regions within nations. We ask: are countries within international currency unions as integrated as regions within political unions? We do this by examining the criteria for Mundell's concept of an optimum currency area. We find that members of currency unions are more integrated than countries with their own currencies, but less integrated than regions within a country. For instance, we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies, but less trade and more volatile exchange rates than regions within individual countries. Similarly, business cycles are more highly synchronized across currency union countries than across countries with sovereign monies, but not as synchronized as regions of a single country. Finally, currency union membership is not associated with significantly greater risk sharing, though risk sharing is widespread within countries.
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