Long Swings in Exchange Rates: Are They Really in the Data?

The random walk is often used to model exchange rates. According to the Lucas critique, however, policy shifts may lead to breaks in the trend of exchange rates and hence to long swings. We use a Markov regime-switching model to allow for such swings and we reject the random walk in favor of the regime-switching model. Earlier papers report this result too, but the authors are concerned about the reliability of their Wald based tests in the strongly nonlinear regime-switching model. We show that these tests are indeed not very robust. Hence, we use a likelihood ratio test for which the (non-standard) critical values have been computed recently.Markov regime-switching;testing;forecasting;exchange rates

Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model

We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of the principal components construction to transform the condi- tional component moments back into those of the exchange rate changes themselves. The model is easy to estimate, as it requires only univariate GARCH estimations. Nevertheless, it outperforms the popular constant conditional correlations and factor GARCH models. We find that the ma- jor U.S. dollar exchange rates have become more loosely instead of closely tied since the eighties.Correlations;multivariate models;GARCH;factor models;exchange rates

Purchasing Power Parity: Evidence from a New Test

Most economists intuitively consider purchasing power parity (PPP) to be true. Nevertheless, quite surprisingly, the empirical literature is not very supportive for PPP. In this paper, however, we find evidence in favor of PPP using a new test. The test is embedded in a Markov regime-switching model for the exchange rate, because earlier papers have shown that this model describes the data better than the popular random walk. We allow for PPP by making the regime-switching probabilities depend on the PPP deviation. Our second result is that PPP disequilibria have become shorter- lived for some exchange rates, which may be due to an increase in the trade openness of the countries involved.purchasing power parity;Markov regime-switching;testing;forecasting;exchange rates

Why is it so Difficult to Find an Effect of Exchange Rate Risk on Trade?

It is commonly argued that exchange rate risk depresses international trade. However, the large literature on this subject has not yet provided conclusive evidence. This paper analyzes why it is so difficult to obtain a clear answer from time series analyses. We use data on bilateral aggregate U.S. exports to the other G7 countries. The results show that export decisions are mostly affected by the exchange rate about one year later. The riskiness of the exchange rate at such a long horizon appears fairly constant over time with only short-term fluctuations. This makes it difficult to discover the true effect of exchange risk on trade from the limited time series data that are typically available.

Subjective localization of electrocutaneous stimuli

Studying the perception of spatiotemporal stimulus patterns in various modalities may yield important information on the way in which humans process sensory information. The perception of tactile and nociceptive cutaneous stimulus patterns have been studied by Stolle et al. [1] and Trojan et al. [2][4] respectively. Among other things, both authors studied subjective localization of single stimuli. In Trojan et al. [4], two types of mislocalization patterns were observed for nociceptive single stimuli when comparing the localization reports with the stimulus locations: (1) overall proximal or distal displacement and (2) expansion or contraction of the stimulus area.\ud It is unknown whether tactile and nociceptive stimuli at the same skin site are perceived as being at the same site. Therefore, comparing the spatial perception of tactile and nociceptive cutaneous stimuli may provide new insights into their processing. This comparison can only be successfully made by applying nociceptive and tactile stimuli at the same skin site in the same experiment. This can be done by using a device which has recently been developed at our institute and which we refer to as the bimodal stimulation electrode [3]. \ud Recording the perceived locations of stimuli can be done by letting subjects report these on a scale. The most intuitive scale for this is the stimulated arm itself. However, this would bias the perception of stimulus location by providing visual information of the electrode locations. The goal of the present research was to (1) create and (2) test a setup which allows subjects to report perceived stimulus locations on their own arm without seeing the electrode positions. This was achieved by building a setup consisting of a touch screen (Provision Visboard) which presents a digital image of the subject’s own arm (without electrodes) and which is positioned over this arm after the electrodes have been attached. Subjects can report the localizations by pointing at the screen using a pointer

Why is it so Difficult to Find An Effect of Exchange Rate Risk on Trade?

The question whether exchange rate risk a¤ects trade has received considerable attention in the literature. However, the conclusions are still mixed. This paper analyzes why it is so difficult to obtain a clear answer from time series analyses. We use data on bilateral aggregate US exports to the other G7 countries. The results show that export decisions are mostly affected by the exchange rate about one year later. The riskiness of the exchange rate at such a long horizon appears fairly constant over time with only short-term fluctuations. This makes it difficult to discover the true effect of exchange risk on trade from the limited time series data that are typically available.Exports;risk measurement;imperfect substitutes;distributed lags

Estimation of the regional evapotranspiration from remotely sensed crop surface temperatures. Grassland

Estimation of the regional evapotranspiration from remotely sensed crop surface temperature