Coakley, Jerry

Fuertes, Ana-Maria

Wood, Andrew, Dr.

English

Warwick Research Archives Portal Repository

 WORKING PAPERS SERIES WP02-10    Reinterpreting the Real Exchange Rate - Yield Differential Nexus Jerry Coakley, Ana-Maria Fuertes and Andrew Wood  !"#$%"&'&"%#$( %)" !"*+ ,-.)*$(" !*%" / 0#"+12#3"&"$%#*+ 4"-56Figure 1 Alternative measures of ex ante real short-term yield differential-15-10-5051074 76 78 80 82 84 86 88 90 92 94 96 98MA StaticGermanyPercentage points-10-5051074 76 78 80 82 84 86 88 90 92 94 96 98MA StaticCanadaPercentage pointsFigure 2 Real exchange rates (left scale) and ex ante long-term yield differentials (right scale)2.22.42.62.83.03.2-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rAustr ia3.23.43.63.84.04.2-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rBelgium0.00.10.20.30.40.5-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rCanada1.61.82.02.22.42.6-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rDenmar k1.41.61.82.02.22.4-0.04-0.020.000.020.040.060.080.1084 86 88 90 92 94 96 98q r* - rFr ance0.20.40.60.81.01.2-0.06-0.04-0.020.000.020.040.0684 86 88 90 92 94 96 98q r* - rGermany-0.8-0.6-0.4-0.20.00.2-0.04-0.020.000.020.040.060.080.100.1284 86 88 90 92 94 96 98q r* - rIr eland7.07.27.47.67.88.0-0.040.000.040.080.1284 86 88 90 92 94 96 98q r* - rItaly4.44.64.85.05.25.4-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rJapan3.23.43.63.84.04.2-0.04-0.020.000.020.040.0684 86 88 90 92 94 96 98q r* - rLuxembourg0.40.60.81.01.2-0.06-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rNether lands0.20.40.60.81.0-0.040.000.040.080.120.1684 86 88 90 92 94 96 98q r* - rNew  Zealand1.61.82.02.22.4-0.020.000.020.040.0684 86 88 90 92 94 96 98q r* - rNor way4.85.05.25.45.65.80.000.020.040.060.080.100.120.1484 86 88 90 92 94 96 98q r* - rPor tugal4.44.64.85.05.25.45.6-0.040.000.040.080.1284 86 88 90 92 94 96 98q r* - rSpain1.61.82.02.22.42.6-0.04-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rSweden0.00.20.40.60.81.0-0.020.000.020.040.060.0884 86 88 90 92 94 96 98q r* - rSwitzer land-0.8-0.6-0.4-0.20.00.2-0.04-0.020.000.020.040.060.080.100.1284 86 88 90 92 94 96 98q r* - rUn ited  KingdomFig 3 Real exchange rates (left scale) and ex ante short-term yield differentials (right scale)3.03.23.43.63.84.04.2-0.15-0.10-0.050.000.050.1074 76 78 80 82 84 86 88 90 92 94 96 98q r* - rBelg ium2.22.42.62.83.03.2-0.10-0.050.000.050.1074 76 78 80 82 84 86 88 90 92 94 96 98q r* - rAustr ia0.00.10.20.30.40.5-0.08-0.040.000.040.0874 76 78 80 82 84 86 88 90 92 94 96 98q r* - rCanada1.41.61.82.02.22.42.6-0.20-0.15-0.10-0.050.000.050.100.1574 76 78 80 82 84 86 88 90 92 94 96 98q r* - rDenmar k1.41.61.82.02.22.4-0.15-0.10-0.050.000.050.100.1574 76 78 80 82 84 86 88 90 92 94 96 98q r* - rFr ance0.20.40.60.81.01.2-0.10-0.050.000.050.1074 76 78 80 82 84 86 88 90 92 94 96 98q r* - rGermany5.45.65.86.06.2-0.2-0.10.00.10.20.30.40.574 76 78 80 82 84 86 88 90 92 94 96 98q r* - rGr eece3.84.04.24.44.64.8-0.4-0.20.00.20.40.60.81.074 76 78 80 82 84 86 88 90 92 94 96 98q r* - rIceland7.07.27.47.67.8-0.4-0.3-0.2-0.10.00.10.20.374 76 78 80 82 84 86 88 90 92 94 96 98q r* - rIr eland7.07.27.47.67.88.0-0.15-0.10-0.050.000.050.100.1574 76 78 80 82 84 86 88 90 92 94 96 98q r* - rItaly4.64.85.05.25.45.6-0.10.00.174 76 78 80 82 84 86 88 90 92 94 96 98q r* - rJapan0.20.40.60.81.01.2-0.10-0.050.000.050.1074 76 78 80 82 84 86 88 90 92 94 96 98q r* - rNether lands0.20.40.60.81.0-0.2-0.10.00.10.274 76 78 80 82 84 86 88 90 92 94 96 98q r* - rNew  Zealand1.61.82.02.22.4-0.3-0.2-0.10.00.10.274 76 78 80 82 84 86 88 90 92 94 96 98q r* - rNorway4.85.05.25.45.65.8-0.3-0.2-0.10.00.10.20.30.474 76 78 80 82 84 86 88 90 92 94 96 98q r* - rPor tugal4.44.64.85.05.25.45.6-0.3-0.2-0.10.00.10.20.374 76 78 80 82 84 86 88 90 92 94 96 98q r* - rSpain1.61.82.02.22.4-0.5-0.4-0.3-0.2-0.10.00.10.274 76 78 80 82 84 86 88 90 92 94 96 98q r* - rSweden0.00.20.40.60.81.0-0.10-0.050.000.050.100.1574 76 78 80 82 84 86 88 90 92 94 96 98q r* - rSwitzer land-0.8-0.6-0.4-0.20.00.2-0.10.00.10.20.374 76 78 80 82 84 86 88 90 92 94 96 98q r* - rUn ited  Kingdom!!"#$%&'()*)+#,(,+#%+,((   List of other working papers: 2002 1. Paolo Zaffaroni, Gaussian inference on Certain Long-Range Dependent Volatility Models, WP02-12 2. Paolo Zaffaroni, Aggregation and Memory of Models of Changing Volatility, WP02-11 3. Jerry Coakley, Ana-Maria Fuertes and Andrew Wood, Reinterpreting the Real Exchange Rate - Yield Diffential Nexus, WP02-10 4. Gordon Gemmill and Dylan Thomas , Noise Training, Costly Arbitrage and Asset Prices: evidence from closed-end funds, WP02-09 5. Gordon Gemmill, Testing Merton's Model for Credit Spreads on Zero-Coupon Bonds, WP02-08 6. George Christodoulakis and Steve Satchell, On th Evolution of Global Style Factors in the MSCI Universe of Assets, WP02-07 7. George Christodoulakis, Sharp Style Analysis in the MSCI Sector Portfolios: A Monte Caro Integration Approach, WP02-06 8. George Christodoulakis, Generating Composite Volatility Forecasts with Random Factor Betas, WP02-05 9. Claudia Riveiro and Nick Webber, Valuing Path Dependent Options in the Variance-Gamma Model by Monte Carlo with a Gamma Bridge, WP02-04 10. Christian Pedersen and Soosung Hwang, On Empirical Risk Measurement with Asymmetric Returns Data, WP02-03 11. Roy Batchelor and Ismail Orgakcioglu, Event-related GARCH: the impact of stock dividends in Turkey, WP02-02 12. George Albanis and Roy Batchelor, Combining Heterogeneous Classifiers for Stock Selection, WP02-01 2001 1. Soosung Hwang and Steve Satchell , GARCH Model with Cross-sectional Volatility; GARCHX Models, WP01-16 2. Soosung Hwang and Steve Satchell, Tracking Error: Ex-Ante versus Ex-Post Measures, WP01-15 3. Soosung Hwang and Steve Satchell, The Asset Allocation Decision in a Loss Aversion World, WP01-14 4. Soosung Hwang and Mark Salmon, An Analysis of Performance Measures Using Copulae, WP01-13 5. Soosung Hwang and Mark Salmon, A New Measure of Herding and Empirical Evidence, WP01-12 6. Richard Lewin and Steve Satchell, The Derivation of New Model of Equity Duration, WP01-11 7. Massimiliano Marcellino and Mark Salmon, Robust Decision Theory and the Lucas Critique, WP01-10 8. Jerry Coakley, Ana-Maria Fuertes and Maria-Teresa Perez, Numerical Issues in Threshold Autoregressive Modelling of Time Series, WP01-09 9. Jerry Coakley, Ana-Maria Fuertes and Ron Smith, Small Sample Properties of Panel Time-series Estimators with I(1) Errors, WP01-08 10. Jerry Coakley and Ana-Maria Fuertes, The Felsdtein-Horioka Puzzle is Not as Bad as You Think, WP01-07 11. Jerry Coakley and Ana-Maria Fuertes, Rethinking the Forward Premium Puzzle in a Non-linear Framework, WP01-06 12. George Christodoulakis, Co-Volatility and Correlation Clustering: A Multivariate Correlated ARCH Framework, WP01-05 13. Frank Critchley, Paul Marriott and Mark Salmon, On Preferred Point Geometry in Statistics, WP01-04 14. Eric Bouyé and Nicolas Gaussel and Mark Salmon, Investigating Dynamic Dependence Using Copulae, WP01-03 15. Eric Bouyé, Multivariate Extremes at Work for Portfolio Risk Measurement, WP01-02 16. Erick Bouyé, Vado Durrleman, Ashkan Nikeghbali, Gael Riboulet and Thierry Roncalli, Copulas: an Open Field for Risk Management, WP01-01 2000 1. Soosung Hwang and Steve Satchell , Valuing Information Using Utility Functions, WP00-06   2. Soosung Hwang, Properties of Cross-sectional Volatility, WP00-05  3. Soosung Hwang and Steve Satchell, Calculating the Miss-specification in Beta from Using a Proxy for the Market Portfolio, WP00-04  4. Laun Middleton and Stephen Satchell, Deriving the APT when the Number of Factors is Unknown, WP00-03  5. George A. Christodoulakis and Steve Satchell, Evolving Systems of Financial Returns:  Auto-Regressive Conditional Beta, WP00-02  6. Christian S. Pedersen and Stephen Satchell, Evaluating the Performance of Nearest Neighbour Algorithms when Forecasting US Industry Returns, WP00-01  1999 1. Yin-Wong Cheung, Menzie Chinn and Ian Marsh, How do UK-Based Foreign Exchange Dealers Think Their Market Operates?, WP99-21 2. Soosung Hwang, John Knight and Stephen Satchell, Forecasting Volatility using LINEX Loss Functions, WP99-20 3. Soosung Hwang and Steve Satchell, Improved Testing for the Efficiency of Asset Pricing Theories in Linear Factor Models, WP99-19 4. Soosung Hwang and Stephen Satchell, The Disappearance of Style in the US Equity Market, WP99-18 5. Soosung Hwang and Stephen Satchell, Modelling Emerging Market Risk Premia Using Higher Moments, WP99-17 6. Soosung Hwang and Stephen Satchell, Market Risk and the Concept of Fundamental Volatility:  Measuring Volatility Across Asset and Derivative Markets and Testing for the Impact of Derivatives Markets on Financial Markets, WP99-16 7. Soosung Hwang, The Effects of Systematic Sampling and Temporal Aggregation on Discrete Time Long Memory Processes and their Finite Sample Properties, WP99-15 8. Ronald MacDonald and Ian Marsh, Currency Spillovers and Tri-Polarity:  a Simultaneous Model of the US Dollar, German Mark and Japanese Yen, WP99-14 9. Robert Hillman, Forecasting Inflation with a Non-linear Output Gap Model, WP99-13 10. Robert Hillman and Mark Salmon , From Market Micro-structure to Macro Fundamentals:  is there Predictability in the Dollar-Deutsche Mark Exchange Rate?, WP99-12 11. Renzo Avesani, Giampiero Gallo and Mark Salmon, On the Evolution of Credibility and Flexible Exchange Rate Target Zones, WP99-11 12. Paul Marriott and Mark Salmon, An Introduction to Differential Geometry in Econometrics, WP99-10 13. Mark Dixon, Anthony Ledford and Paul Marriott, Finite Sample Inference for Extreme Value Distributions, WP99-09 14. Ian Marsh and David Power, A Panel-Based Investigation into the Relationship Between Stock Prices and Dividends, WP99-08 15. Ian Marsh, An Analysis of the Performance of European Foreign Exchange Forecasters, WP99-07 16. Frank Critchley, Paul Marriott and Mark Salmon, An Elementary Account of Amari's Expected Geometry, WP99-06 17. Demos Tambakis and Anne-Sophie Van Royen, Bootstrap Predictability of Daily Exchange Rates in ARMA Models, WP99-05 18. Christopher Neely and Paul Weller, Technical Analysis and Central Bank Intervention, WP99-04 19. Christopher Neely and Paul Weller, Predictability in International Asset Returns: A Re-examination, WP99-03 20. Christopher Neely and Paul Weller, Intraday Technical Trading in the Foreign Exchange Market, WP99-02 21. Anthony Hall, Soosung Hwang and Stephen Satchell, Using Bayesian Variable Selection Methods to Choose Style Factors in Global Stock Return Models, WP99-01 1998 1. Soosung Hwang and Stephen Satchell, Implied Volatility Forecasting:  A Compaison of Different Procedures Including Fractionally Integrated Models with Applications to UK Equity Options, WP98-05 2. Roy Batchelor and David Peel, Rationality Testing under Asymmetric Loss, WP98-04 3. Roy Batchelor, Forecasting T-Bill Yields: Accuracy versus Profitability, WP98-03 4. Adam Kurpiel and Thierry Roncalli , Option Hedging with Stochastic Volatility, WP98-02 5. Adam Kurpiel and Thierry Roncalli, Hopscotch Methods for Two State Financial Models, WP98-01 

Reinterpreting the real exchange rate - yield differential nexus

http://wrap.warwick.ac.uk/1803/1/WRAP_Coakley_fwp02-10.pdf

Reinterpreting the real exchange rate - yield differential nexus

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