Testing the asset pricing model of exchange rates with survey data

This paper proposes a new test for the asset pricing model of the exchange rate. It examines whether the way market analysts generate their forecasts is closer to the one implied by the asset pricing model, or to any of those implied by some alternative models. The asset pricing model is supported by the test since it has significantly better out-of-sample fit on survey data than simpler models including the random walk. The traditional test based on forecasting ability is applied as well. The asset pricing model proves to have better forecast accuracy in case of some exchange rates and forecast horizons than the random walk.asset pricing exchange rate model, present value model of exchange rate, survey data

Target zone rearrangements and exchange rate behavior in an options-based model

This paper sets up an options-based model of the exchange rate in a target zone system according to which the observed exchange rate is equivalent to a floating exchange rate adjusted with the value of two options. The strike prices of the options are the limits of the band, but the two options are interrelated which complicates their evaluation. Within this framework, the direct effect of the band rearrangement on the exchange rate can be measured by the change of the option prices caused by the change of the strike prices. We apply this options-based model to analyze the depreciation of the forint in the summer of 2003. Depreciation is decomposed into (a) the direct effect of the band-shift; (b) changing expectations relating the final conversation rate in the EMU; and (c) changing uncertainty. Exchange rate changes of some European currencies due to band rearrangements is also analyzed.target zone system, options, option pricing, target zone rearrangement, band-shift, band widening.

Beating the Random Walk in Central and Eastern Europe by Survey Forecasts

This paper investigates the forecasting ability of survey data on exchange rate expectations with multiple forecast horizons. The survey forecasts are on the exchange rates of five Central and Eastern European currencies: Czech Koruna, Hungarian Forint, Polish Zloty, Romanian Leu and Slovakian Koruna. First, different term-structure models are fitted on the survey forecasts. Then, the forecasting performances of the fitted forecasts are compared. The fitted forecasts for the 5 months horizon and beyond are proved to be significantly better than the random walk on the pooled data of the five currencies. The best performing term-structure model is the one that assumes an exponential relationship between the forecast and the forecast horizon, and has time-varying parameters.evaluating forecasts, exchange rate, survey forecast, time-varying parameter, term-structure of forecasts

Are the exchange rates of EMU candidate countries anchored by their expected euro locking rates?

This paper tests whether the exchange rates of the Czech koruna, the Hungarian forint, and the Polish zloty were anchored by market expectations concerning their euro locking rates. First, the process of the exchange rate is derived as a function of the following factors: (i) latent exchange rate, (ii) market expectations concerning locking rate, (iii) market expectations concerning locking date. Then, the locking dates and rates are filtered from historical exchange rates, currency option prices and yield curves. The main finding of the paper is that the relatively stable market expectations concerning the locking rates have substantially stabilized the three analyzed exchange rates.Monetary union, eurozone entry, factor model, Kalman filter, exchange rate stabilization, asset-pricing exchange rate model.

Is there a bank lending channel in Hungary? Evidence from bank panel data

In this paper we analyze the bank lending channel in Hungary. We provide a brief overview of the theory and the empirical approaches used to investigate the existence of bank lending channel. From the possible methods we use the generally applied approach suggested by Kahsyap and Stein (1995) which relies on discovering asymmetries in changes in the amount of loans to monetary actions in order to isolate supply and demand effects. We estimate an ARDL model where the asymmetric effects are captured by interaction-terms. We find significant asymmetric adjustment of loan quantities along certain bank characteristics. The existence of bank lending channel, and therefore loan supply decisions of banks, can explain these asymmetries. In addition, we do not find any sign for asymmetric loan demand adjustment along these variables. According to these findings, we cannot rule out the existence of the bank lending channel in Hungary.monetary transmission, credit channel, bank lending channel, ARDL model.

Hogyan szálazzuk szét a megfigyelhető változások okait?

A tanulmány egy olyan dekompozíciós képlet alkalmazását mutatja be, amellyel időbeli változásokat bonthatunk fel az azok hátterében álló tényezők ceteris paribus, valamint interakciós hatására. Ezt a dekompozíciós képletet Biewen [2014] javasolta. A jelentőségét abban látta, hogy – szemben az empirikus dekompozíciós irodalom néhány ágával – az ő megközelítése nem hagyja figyelmen kívül az interakciós tagokat. Az empirikus dekompozíciós irodalom azon ága is példa az interakciós tag gyakori kihagyására, amely aggregált szinten elemzi a párválasztási döntéseket. Ez a körülmény motiválja, hogy a tanulmány empirikus részében egy, az asszortatív házasságok irodalmában vizsgált probléma elemzésével illusztráljuk a Biewen-féle képlet alkalmazását. Az elemzést öt ország adatain végezzük el, ahol az adatok a párok iskolázottságáról szólnak. Az elemzés lehetővé teszi, hogy kvantitatív módon jellemezzünk egy közvetlenül nem megfigyelhető jelenséget, nevezetesen az iskolázottság szerinti homofíliának az egyik generációról a másikra történő megváltozását. Az interakciók figyelembevételével számolt hatások határozottan megerősítik Naszódi–Mendonça [2021] egyetlen ország – az Egyesült Államok – elemzésével kapott eredményét: a második világháborút követően volt egy olyan időszak, amikor a homofília gyengült – azaz az eltérő iskolázottságúak közötti házasságok elfogadottabbá váltak –, majd egy olyan, amelyet éppen az ellenkező irányú trend jellemzett. Ezt az eredményt azonban csak a dekompozíciós képlet gondos megválasztása mellett kapjuk robusztus formában

The single resolution fund and the credit default swap: what is the coasian fair price of their insurance services?

This paper develops an option-based model to analyze the relationship between two insurances, both providing protection against bank failures. One of these insurances is offered to European banks by the Single Resolution Fund on a compulsory basis in return for their contributions to the Fund, while the other is by the CDS market. The model provides a theoretical framework for testing whether the contributions of banks are fair in the Coasian sense relative to the CDS spreads

A new method for identifying the role of marital preferences at shaping marriage patterns

We develop a method which assumes that marital preferences are characterized either by the scalar-valued measure proposed by Liu and Lu, or by the matrix-valued generalized Liu–Lu measure. The new method transforms an observed contingency table into a counterfactual table while preserving its (generalized) Liu–Lu value. After exploring some analytical properties of the new method, we illustrate its application by decomposing changes in the prevalence of homogamy in the US between 1980 and 2010. We perform this decomposition with two alternative transformation methods as well where both methods capture preferences differently from Liu and Lu. Finally, we use survey evidence to support our claim that out of the three considered methods, the new transformation method is the most suitable for identifying the role of marital preferences at shaping marriage patterns. These data are also in favor of measuring assortativity in preferences à la Liu and Lu

Studies On The Potential Impacts Of The New Basel Capital Accord

In April 2003, the Basel Committee on Banking Supervision published the third consultative paper (CP3) of the new Basel Capital Accord relating to the prudential regulation of banks, which was followed in July 2003 by the EU Commission’s draft directive with the same contents, but slightly different detailed rules (Capital Adequacy Directive, CAD3). During the consultative process both organisations expect comments from the players affected by the new capital regulation, thus from the central banks of each country as well. The significance of the new capital regulation is underlined by the fact that the Basel recommendation will soon be followed by the European Union’s directive (presumably in 2004), the implementation of which will be one of the largest regulative challenges for Hungary. Accordingly, the Magyar Nemzeti Bank pays special attention to preparing the implementation of the Basel II/CAD3 capital accords, laying the groundwork for the adaptation and carrying out the necessary background analyses. Our main objective in the first phase of this rather complex and far-reaching project was – through participation in the legislative process – to analyse the issues important and relevant for the MNB, as well as to assess the potential consequences of implementation in Hungary. During such analyses we focused on the macro-prudential consequences. Accordingly, we carried out a detailed assessment of five topics.Basel Capital Accord, Pro-cyclicality, Credit risk, Market Risk, Regulation, Corporate governance.

Changing central bank transparency in Central and Eastern Europe during the financial crisis

There is ample empirical evidence in the literature for the positive effect of central bank transparency on the economy. The main channel is that transparency reduces the uncertainty regarding future monetary policy and thereby it helps agents to make better investment, and saving decisions. In this paper, we document how the degree of transparency of central banks in Central and Eastern Europe has changed during periods of financial stress, and we argue that during the recent financial crisis central banks became less transparent. We investigate also how these changes affected the uncertainty in these economies, measured by the degree of disagreement across professional forecasters over the future short-term and long-term interest rates and also by their forecast accuracy