The Euro exchange rate market efficiency and the risk premium: an empirical analysis with an ecm model

The purpose of this work is to investigate the efficiency of the current Euro spot and current forward exchange rates. Within the past three decades there have been large movements in the exchange rate markets and often these movements were not related with the changes in the “fundamentals” of the economy. On the other hand, the exchange rate market efficiency implies that, if the market is efficient, there is no remaining ex ante opportunities for making profits through speculation. Hence, testing for efficiency involves the joint hypothesis of a specific risk premium and rationality. We analysed the relationship between spot and forward rates of the Euro against the British pound and the US dollar. For one of the two exchange rates (EU/UK), we reject the hypothesis of efficiency and a further analysis on the presence of a risk premium shows that it is consistent and time varying

Inflation Persistance and Credibility in Turkey During the Nineties

This study assesses the credibility of disinflation programs in Turkey during the nineties, where several programs of reform took place. We investigate the credibility of these policies building on a previous research made by Agenor and Taylor (1993). The model is based on two assumptions: (i) inflation is a serially correlated process; (ii) the definition of a proxy that is able to measure the degree of credibility of a programme. The empirical results show that there was a sharp loss of credibility at the end of the 1991 and at the beginning of the 1994 and during the Asian crisis. The Program that the Central Bank implemented after the crisis was able to increase the level of credibility of the CBRT policies. Loss of credibility is registered during the end of the 1995, while various political events took place and during the 1997 following the world economic conditions and the outflow of capitals

Efficiency and News in Exchange Rate Market. The Euro/Dollar Case

The aim of the paper is twofold: the first one is to examine the theoretical points that constitute literature on exchange rate market efficiency. We give a quick look to the long run, in which high or low efficiency results from the adjustment velocity of prices and production in goods market. We then go to examine literature conclusions about the short run. The second aim is to test the efficiency for the US dollar against the Euro foreign exchange market with a `news’ exchange rate model using daily data over a period of 19 months. In the model we use, as proxies of ‘news’, variables generated by the residuals from a VAR model. Our results are consistent with the hypothesis that the forward exchange rate is not an unbiased predictor of the future spot rate. That is, we reject the hypothesis of efficiency and we show the importance of the ‘news’ in determining short-run movements in the exchange rate markets. The general conclusion we reach is that the euro dollar exchange rate market, from its birth to august 2000, is not efficient because expectations could not be rational, i.e. operators cannot predict risks coming from stock exchange and from uncertainty on future values of economic variables

Optimal Monetary Policy and the Asset Market: A Non-cooperative Game

In this paper we construct a model of a policy game in order to analyse the optimal reaction function of the Central Bank to a shock in the asset market. In doing so, we consider three different noncooperative games: Nash equilibrium, Stackelberg equilibrium with “FED” as leader and “ECB” Stacklberg as leader. Three major conclusions can be drawn from our work in the presence of asset market shocks. First, in the Nash equilibrium the ECB will adopt a less restrictive monetary policy compared to the FED’s behaviour. Second, comparing the Nash and Stackelberg non-cooperative equilibria, the Stackelberg solution is certainly superior when the FED is the leader, but the Nash solution is superior for the follower. Finally, irrespective of where the shocks originate, if the FED would choose the Stackelberg leader equilibrium the ECB would minimize its social loss along with a lower level of interest rates

The role and nature of market sentiment in the 1992 ERM crisis.

This paper attempts to explain the importance of the role of the speculators in determining the 1992 ERM crisis, and the effects that the policy of maintaining external parity had on internal growth. We focus on a different way through which expectations are formed about the macroeconomic fundamentals independently of the behaviour of the monetary policy. In the present model, agents’ rational beliefs do not emerge from arbitrary circumstances but only when the value of the exchange rate, kept under control by the central bank, did not correspond to the expected value and to the current wide-spread beliefs in the market

Are currency crises self-fulfilling? The case of Argentina

This paper analyzes the 2002 Argentine crisis using the Jeanne and Masson (2000) model with sunspots. Testing this model empirically through a Markov-switching model suggests that self-sulfilling prophecies is a reasonable explanation for the devaluation of the peso

Protecting the SWAP\sqrt{SWAP} operation from general and residual errors by continuous dynamical decoupling

We study the occurrence of errors in a continuously decoupled two-qubit state during a $\sqrt{SWAP}$ quantum operation under decoherence. We consider a realization of this quantum gate based on the Heisenberg exchange interaction, which alone suffices for achieving universal quantum computation. Furthermore, we introduce a continuous-dynamical-decoupling scheme that commutes with the Heisenberg Hamiltonian to protect it from the amplitude damping and dephasing errors caused by the system-environment interaction. We consider two error-protection settings. One protects the qubits from both amplitude damping and dephasing errors. The other features the amplitude damping as a residual error and protects the qubits from dephasing errors only. In both settings, we investigate the interaction of qubits with common and independent environments separately. We study how errors affect the entanglement and fidelity for different environmental spectral densities.Comment: Extended version of arXiv:1005.1666. To appear in PR

Fine Grid Numerical Solutions of Triangular Cavity Flow

Numerical solutions of 2-D steady incompressible flow inside a triangular cavity are presented. For the purpose of comparing our results with several different triangular cavity studies with different triangle geometries, a general triangle mapped onto a computational domain is considered. The Navier-Stokes equations in general curvilinear coordinates in streamfunction and vorticity formulation are numerically solved. Using a very fine grid mesh, the triangular cavity flow is solved for high Reynolds numbers. The results are compared with the numerical solutions found in the literature and also with analytical solutions as well. Detailed results are presented

Cerebral plasticity in acute vestibular deficit

The aim of this study was to analyze the effect of acute vestibular deficit on the cerebral cortex and its correlation with clinical signs and symptoms. Eight right-handed patients affected by vestibular neuritis, a purely peripheral vestibular lesion, underwent two brain single photon emission computed tomography (SPECT) in 1 month. The first SPECT analysis revealed reduced blood flow in the temporal frontal area of the right hemisphere in seven of eight patients, independent of the right/left location of the lesion. The alteration was present always in the right, non-dominant hemisphere and was reversible in some patients 1 month after the onset, together with attenuation of signs and symptoms. It may be hypothesized that the transient reduction of cortical blood flow and subsequently of cortical activity in the non-dominant hemisphere, also the expression of cerebral plasticity, may serve as a defense mechanism aimed to attenuate the vertigo symptom