The impact of pre-announced day-to-day interventions on the Colombian exchange rate 1

Size: px
Start display at page:

Download "The impact of pre-announced day-to-day interventions on the Colombian exchange rate 1"

Transcription

1

2 The impac of pre-announced day-o-day inervenions on he Colombian exchange rae 1 Juan José Echavarría Luis Fernando Melo Saniago Téllez Mauricio Villamizar Absrac The adopion of a managed regime assumes ha inervenions are relaively successful. However, while some auhors consider ha foreign exchange inervenions are ineffecive, arguing ha domesic and foreign asses are close subsiues, ohers advocae heir use and mainain ha heir effecs can even las for monhs. There is also a lack of consensus on he relaed quesion of how o inervene. Are diry inervenions more powerful han pre-announced ones? This paper compares he effecs of day-o-day inervenions wih reionary inervenions by combining a Tobi-GARCH reacion funcion wih an asymmeric power PGARCH(1,1) impac funcion. Our resuls show ha he impac of pre-announced and ransparen US$ million daily inervenions, adoped by Colombia in 08 12, has been much larger han he impac of diry inervenions adoped in We find ha he impac of a change in daily inervenions (from US$ million o US$ 40 million) raises he exchange rae by approximaely Col $2, implying ha acual inervenions of US$ 1,000 million increase he exchange rae in one day by 5.50%. We also find ha capial conrols have a posiive effec. Key words: Cenral bank inervenion, reacion funcion, Tobi-GARCH, foreign exchange inervenion mechanisms, capial conrols, diry inervenions. JEL Cclassificaion: E52, E58, F31. 1 The views expressed in his working paper are hose of he auhors, and do no necessarily represen hose of he Colombian Cenral Bank. We wan o hank Kahryn Dominguez, Rasmus Faum, Hernán Rincón, Hernando Vargas, and Juan Pablo Zárae for heir commens. 1

3 Conens I. Inroducion 3 II. Foreign Exchange Inervenion and Capial Conrols in Colombia, III. The Model 14 IV. Esimaion of he Model 18 IV.A. IV.B. IV.C. Acual Inervenions 18 Surprises 24 Channels 27 V. Conclusions 30 VI. Bibliography 30 VII. Appendix 35 2

4 I. Inroducion Each of he major inernaional capial marke-relaed crises since 1994 has involved a fixed or pegged exchange rae regime (Fischer, 01), and auhors such as Kamil (12) argue ha currency missmaches are much marked under pegs. Supporers of free floaing in Colombia conras he deep crisis of 1999, under an exchange band regime, wih he relaively successful recen experience under flexible raes. 2 More generally, counries ha adoped inflaion argeing, and floaed, handled he recen inernaional crisis much beer (Carvalho, 10). Bu Razin and Rubinsein (06) find a ension beween he pro-gdp growh and he pro-crisis effecs produced by pegged exchange raes 3 o be one of he reasons why he number of counries wih managed exchange raes has increased during he las decade, 4 and why many of hose considered free floaers by he IMF do no really floa (Calvo and Reinhar, 02). The corners hypohesis, ha counries are (or should be) moving away from he inermediary regimes, in favor of eiher he hard peg corner or a floaing corner, began o lose populariy afer he failure of Argenina' s quasi-currency board in In he lieraure, Frankel (12) menions five advanages of floaing, bu also five advanages of fixing. Inernaional reserves accumulaion (as a percenage of he moneary base) has been much larger in counries like Singapuore, Korea, Thailand and Taiwan han in China, a counry whose inernaional reserves represen more han 45% of GDP, and Brazil s finance miniser, Guido Manega, considers ha we are in he mids of an inernaional currency war beween he Norh and he Souh. On Sepember 15, 10, Japan purchased US$ 24 billion, an amoun larger han he oal of all inervenions conduced by he US Federal Reserve since 1990 and more han six imes larger han he enire US inervenion in 1985 (Frazscher, 12). Finally, on Sepember 6, of 11, he Swiss Naional Bank decreed se an exchange rae arge of SFr1. o he euro, by being prepared o purchase foreign exchange in unlimied quaniies. Some recen lieraure finds ha FX inervenions have imporan effecs. Thus, for Frazscher (12) counries wih high reserve raios are hose ha end o have undervalued exchange raes (pp ); and, based on GARCH regressions and even sudies for he G3 counries, he same auhor concludes ha FX inervenion policies can indeed exer a sizeable influence on overall exchange rae developmens in he 2 See Gómez, Uribe, and Vargas (02), Zárae, Cobo, and Gómez (12) and Echavarría, e al.(12). 3 Hausmann, Priche, and Rodrik (04) find ha rapid growh acceleraions ha are susained for a period of several years are relaed wih o real exchange depreciaions, and Rodrik (08) shows ha higher growh in emerging economies occurs, on average, afer 10 years of srong devaluaions. 4 Eichengreen, e al. (11), Figure 1 presens he share of differen exchange rae regimes when considering world GDP and world expors. 5 For Frankel (12), he corners hypohesis did no have a good heoreical foundaion. Thus, for example, a arge zone is enirely compaible wih he uncovered ineres pariy condiion (Krugman, 1991). 3

5 medium erm (p.737). To our knowledge, however, here is scan evidence on he relaed quesion on how o inervene. 6 Is i beer for moneary auhoriies o proceed wih secre diry inervenions or wih open, pre-announced and ransparen inervenions? Many cenral banks have adoped inflaion argeing during he las decade convinced ha hey affec he economy as much hrough heir influence on expecaions as hrough any direc, mechanical effecs of cenral bank rading in he marke for overnigh cash (Woodford, 05). They ry o be ransparen, each he marke abou heir mos likely behavior and ry o affec expecaions. Why shouldn hese principles also apply o he managemen of he exchange rae? Why is i, hen, generally assumed (bu no proven), ha he impac of diry inervenions and surprises is sronger? Colombia offers an ideal case sudy because of he various modaliies of inervenion ha he cenral bank has conduced in he pas. 7 These consis of inernaional reserve accumulaion and volailiy opions in he firs par of he decade of 00s, reionary (diry) inervenions during and day-o-day (close o) consan and preannounced inervenions during Secion II describes he evoluion of foreign exchange inervenion and capial conrols in Colombia, Secion III considers a relaively sandard simulaneous equaions model for he deerminans of he exchange rae and Secion IV presens he esimaion resuls. When comparing he effecs of day-o-day inervenions wih reionary inervenions, we combine a Tobi-Garch reacion funcion wih an asymmeric power PGARCH(1,1) impac funcion. Secion V concludes afer a preliminary ussion on possible channels hrough which foreign exchange inervenion affecs he exchange rae. II. Foreign exchange inervenion and capial conrols in Colombia, The US Federal Reserve describes four differen reasons o inervene in foreign exchange markes: o influence rend movemens in exchange raes, o calm disorderly markes, o rebalance is foreign exchange reserve holdings, and o suppor fellow cenral banks in heir exchange rae operaions (Dominguez, 1999). Echavarría, Vásquez, and Villamizar (09) presen a review of he differen argumens given by he cenral bank s Board of Direcors o raionalize inervenions in Colombia. Volailiy and excessive rends can bring 6 Mandeng (03) considers he impac of opion inervenions in Colombia, and Dominguez, Faum, and Vacek (13) analiyzse he impac of reionary and day-o-day sales of reserves by he Czech Naional Bank beween 04 and Colombia adoped a passive crawling peg beween 1967 and 1991, and an exchange rae band beween 1991 and The counry suffered he sronges crisis of he cenury (and one of he sronges in Lain America) in 1999, and moved ino an inflaion argeing regime a he end of I has hen moved in he direcion of furher exchange rae flexibiliy, bu exchange rae inervenions have been imporan. There has always been a local debae abou he opimum amoun (and modaliy) of inervenion. 4

6 a reducion in inernaional rade, increase pressures owards proecionism, increase inflaion persisence and delay he developmen of he financial secor (Rigobón, 08). The coss of exchange rae missalignmens of he exchange rae could be higher in emerging counries where volailiy is larger (parially due o shallow financial markes) and where he real exchange rae could have a higher impac on rade and he real economy. 8 Many emerging markes are relaively open o rade, wih high levels of pass-hrough and higher levels of dollarized liabiliies. 9 The fear of floaing (boh upwards and downwards) could hen be higher in emerging markes han in developed economies. 10 The cenral bank s Board of Direcors is in charge of moneary and exchange rae policy in Colombia. The Miniser of Finance sis in he Board wih one voe (among seven), which means ha he governmen has a moderae role in he design of exchange rae policy, albei less han in oher counries such as Brazil or Mexico (Junguio and Vargas, 1996). Mos ussions by he members of he Board have been cenered on he level and he volailiy of he exchange rae, parially because Colombia (ogeher wih Mexico and Poland) obained has a flexible credi line wih he IMF, a cheap mechanism o parially safeguard he counry agains inernaional shocks. 11 The level of reserves has been moderae when compared o oher counries in he region, 12 and he available sudies on he opimal level of inernaional reserves produce a very wide range of esimaions, in which resuls are exremely sensiive o he specific parameers of he underlying model. 13 Graph 1 summarizes he hisory of inervenions in Colombia during he period Average yearly purchases were close o US$ 2,0 million, much larger han average sales (US$ 571 millions). Purchases were especially high in 05 and 07, and also in Yearly purchases represened 0.12% of (yearly) ransacions in he marke in 03, and 4.06% in 05, wih an average of 1.70% in 00 8 This and oher paragraphs of he paper are aken from Echavarría, Vásquez, and Villamizar (09). 9 See Calvo (1999) and Domac and Mendoza (04). 10 See Calvo and Reinhar (02) and Levy-Yeyai and Surzenegger (07). 11 The amouns involved were US$ 23,668 (45% of he sock of inernaional reserves) in 09, US$ 3,674 (13.9%) in 10, and US$ 5,909 (19.1%) in 12. IMF funds are disbursed in anicipaion o a balance of paymens crisis and he counry pays ineress only when i uses he credi line. See Juna Direciva (09), June, p The raio of reserves o M2 or M3 proposed by Obsfeld, Shambaugh, and Taylor (08) is high in Colombia (i is only higher only in Peru) and higher han he desirable figure of 5% 10% suggesed by Wjinholds and Kapeyn (01) for flexible exchange regimes (also higher han he figure of % suggesed by he auhors for fixed exchange regimes). The relaion o shor erm deb is average in he region and higher han he desired value of one (1). Mejía (12) shows ha inernaional reserves in Colombia are relaively low when compared o GDP. The relaion beween reserves and M3 has been decreasing since 03, while he relaion beween reserves and shor erm deb increased beween and For a ussion on he opimal level of reserves in Colombia see Mejía (12), Calvo, Izquierdo, and Loo-Kung (12) and Banco de la República (12). The calculaion made by he echnical saff of he Bank in 03 concluded ha he observed level of US$ millions was close o he opimum. 14 There were some sales of US$ dollars o he governmen in 04 06, inended o pay exernal deb. 5

7 12; hey represened 1% of he average sock of inernaional reserves in 03, 33% in 05, wih an average of 11.86% in US$ Millions 6,000 Graph 1 Colombian cenral bank inervenions 5,000 4,000 3,000 2,000 1,000 Sales Purchases Sales o Governmen : January - Augus Table 1 shows he relaive imporance of differen ypes of inervenion: opions for reserve accumulaion, opions for he conrol of volailiy, reionary inervenions and fixed (close o) US$ million per day inervenions. 16 Pu opions for reserve accumulaion, parially implemened o replenish he srong reducion of inernaional reserves observed in , accouned for all purchases in 00 03, while reional inervenions explained a large par of purchases in The amouns and periods of he inervenion were iniially announced, bu ha pracice changed laer on when periods and amouns became indefinie. Following he example of Chile and Israel, he cenral bank decided o buy (close o) US$ million per day, during wo monhs in 08, five monhs in 10, six monhs in 11, and every monh since February 6, of 12. The amoun of US$ million was obained as an average of he daily purchases in 15 Daily ransacions in he marke are close o US$ 1,000 million oday, and o US$ 3 million in (average). The sock of inernaional reserves is close o US$ 33,000 million oday, and o US$ 10,611 in (average). 16 Nex day purchases accumulae when here is a holiday in he Unied Saes or when -1 aucions are no fully exercised. For a good descripion of he evoluion of Colombian inervenions, see Juna Direciva del Banco de la República (07), pp and Juna Direciva del Banco de la República (11), pp

8 hose wo counries. In 08 Chile purchased US$ 50 million in a marke wih daily ransacions of US$ 2,036 million, while Israel purchased US$ 25 million in a marke wih daily ransacions of US$ 3,543 million. Colombia (wih a marke of US$ 1,290 million), should buy daily amouns of US$ 31.8 and US$ 9.1 million in order o emulae Chile and Israel, respecively. The amoun of US$ million also ook ino accoun he serilizaion capabiliies of he cenral bank during hose years. I was considered a he ime ha his was a good mechanism for accumulaing reserves wihou promoing he speculaive aacks observed in he pas wih diry inervenions. Finally, volailiy opions were used o buy and (mainly) sell foreign currency in some days in 04, 06, 07, 08 and 09. Volailiy opions have no been used during he recen years, parially because here are doubs abou heir impac, and parially because hey migh inerfere wih he effec of he US$ million purchases (he cenral bank could be selling and buying dollars during he same day). Pu/call opions for reserve accumulaion were aucioned monhly and agens had he righ o exercise hem oally or parially during he following 30 days, as long as he exchange rae was lower han he average of he las days. This means ha inernaional reserves were purchased a a low price (or high in he case of sell orders). The bank could announce a new aucion during he same monh even if he previous acion had no expired. Volailiy opions were aucioned auomaically whenever he difference beween he exchange rae of he previous day (he so called TRM) and he moving average of he las weny days was higher (lower) han 5%. This percenage changed o 4% in December 01; o 2% in February 6, 06; o 5% in June 24, 08; and o 4% in Ocober 13, 11. Ramírez (05) considers ha exchange rae inervenions in Colombia were relaively ransparen. Opions were announced he same day ha hey were exercised (he name of he firm remained confidenial), and he amoun of inervenion was announced each week. Very ofen he Board of Direcors pre-announced he oal amoun of dollars o be bough/sold during he nex monhs. For example, he Board announced an inervenion of US$ 1000 millions during he las hree monhs of 04, 17 and on June, of 08 he Board announced he new US$ millions inervenions, wih an amoun of US$ 2,400 million o be bough beween July and December (US$ 3,500 million over he whole year). As will be seen in Secions III and IV, some inervenions have been relaed o misalignmens of he real exchange rae. As a proxy for he long-run equilibrium exchange rae ( s ) we consider he mean of seven in house srucural models esimaed a he Colombian cenral bank: models (1) and (2) are based on 17 Bu in December 04, he Board announced addiional undefined inervenions in erms of amouns and periods. 7

9 purchasing power pariy; model (3) uses a Hodrick-Presco filer; models (4) and (5) are based on VEC and srucural VEC mehodologies; and models (6) and (7) on equilibrium heories of he curren accoun. This equilibrium exchange rae is presened monhly o he Board of Direcors o feed he ussion on poenial misalignmens. Wha were he reasons ha moved he moneary auhoriy o change reionary (diry) inervenions in for clean, ransparen, and pre-announced US$ million per day purchases? Par of he answer has o do wih he speculaive aacks from banks and oher privae agens. As can be seen in Graph 3, reionary inervenions sopped afer March 1, 06, and devaluaions were very srong he following days, sronger han in Brazil (somehing similar happened afer April 30, 07). 18 Also, because some members of he Board were convinced ha oral inervenions (i.e. vocal or mediaic) were imporan, a resul ha we uss in Secion IV.C. Table 1 Colombian inervenions, Purchases (US$) ,905 4,658 1,781 5,082 2, ,060 3,7 2,840 Paricipaion (%) Opions Pu Inernaional Reserve Accumulaion Volailiy Opions $ million/day aprox Discreional Inervenion Sales (US$) ,250 1, Paricipaion (%) Opions Call Inernaional Reserve Reducion Volailiy Opions Sales o Naional Governmen Ne Purchases ,405 1, ,713 2, ,060 3,7 2,840 : january - augus Graph 2 shows he level and he volailiy of he daily nominal exchange rae for a group of Lain American counries. Exchange raes are defined as he amoun of local currency per US$, so an increase corresponds o a depreciaion of he Colombian peso. The level of he differen nominal exchange raes is no very differen a he beginning and he end of he period in Colombia (index of 91.7 in November 6, 12 and 97 in March 3, 00), Brazil (113.0 vs ) and Chile (91.3 vs ), bu i is lower oday in Peru (91.3 vs ). This implies a srong real revaluaion for he four counries. On he oher hand here were srong nominal devaluaions in Argenina (mainly, vs. 25.9), and Mexico (101.8 vs. 74.7). 18 Causaliy could also run in he opposie direcion, wih purchases being abandoned when he exchange rae sared o rise. 8

10 The righ par of he graph shows he volailiy of he exchange rae, calculaed from a GARCH model. Averages for he whole period indicae ha i has been especially high in Brazil, followed by Chile, Colombia and Mexico (similar levels) and i has been much lower in Peru. Volailiy was especially marked in all counries a he end of 08 (Lehman Brohers), in some episodes a he beginning of 12, and a in he middle of 05, 06 and 10, bu i does no seem o be higher oday han in he pas. The correlaion beween volailiy in Colombia and Brazil has been especially high bu i has also been high beween Colombia and Chile (0.47), Mexico (0.45) and even Peru (0.45). Loaiza and Melo (12) find a srong relaion beween he exchange raes in Colombia and Brazil (see also Secion IV). Graph 2 The exchange rae in some Lain American counries. Level and volailiy 240 Index (feb 26, 10=100).05 Volailiy 0 Brazil.04 Brazil Peru Mexico Chile Colombia Chile Colombia Mexico 40 Argenina Peru 1/3/00 12/11/01 11/26/03 10/31/05 10/2/07 9/10/09 8/17/11 1/3/03 3/5/04 5/2/05 6/27/06 8/31/07 11/18/08 1/21/10 4/4/11 6/14/12 The level of he exchange rae in Colombia, alhough similar a he beginning and end of he sample, underwen severe revaluaion and devaluaion episodes. Exchange rae devaluaions were paricularly pronounced beween he end of 1999 and January 03 (56%, inernaional panic wih Lula); during he firs semeser of 06 (14%) and during he Lehman Broher s crisis (51%, July, 08 February, 09). The paern is relaively similar in Brazil, wih higher volailiy beween 00 and 06, and a differen level a he end of he sample. On he oher hand, revaluaions were marked in Colombia beween January 03 and June 08 (-42.5%) and beween February 09 and February 12. Mos foreign exchange purchases were conduced during periods of srong revaluaion of he exchange rae. Graphs 3 and 4 show he evoluion of he differen ypes of inervenion, and he nominal exchange rae ( S ) in Colombia and Brazil, during Discreional inervenion I p and US$ million p p p opions I are shown in Graph 3; and reserve accumulaion I res _ op and volailiy opions I vol _ op in Graph 4. There were 723 days of reionary purchases, wih an average of US$ million and a maximum of US$ 723 million (on March 390, 07); 437 days of US$ million inervenions disribued in four episodes; 80 days of reserve accumulaion opions (purchases) wih an average of US$ 41 million and a maximum of US$ 0 million; and 41 days of volailiy opion purchases wih an average of US$ 51 million and a maximum of 9

11 US$ 170 million. Graph 3 Differen ypes of inervenion and he nominal exchange rae in Colombia and Brazil US$ Millions S Brazil S Colombia I p I p Index 01jan00 01jul02 01jan jul07 01jan10 01jul12 10

12 Graph 4 Differen ypes of inervenion and he nominal exchange rae in Colombia and Brazil US$ Millions S Brazil I p res_op S Colombia Index US$ Millions S Brazil S Colombia I p vol_op Index 01jan00 01jul02 01jan05 01jul07 01jan10 01jul12 01jan00 01jul02 01jan05 01jul07 01jan jul12 Wih some sporadic excepions, 19 he Board always made clear ha inervenions would be serilized, which mean ha he one-day marke ineres rae was very close o he Board s repo rae, boh before and afer inervenion. Large governmen-remuneraed deposis a he cenral bank eased he job. Average deposis in doubled he amoun of oal inervenions, and represened one fifh of he average sock of inernaional reserves. The firs panel of Graph 5 presens he evoluion of he one-day repo rae ( repo i ), he inerbank one-day rae ( i 1 ) and he 90-days rae ( i 90 percenage differences beween hem. The value of i 1 i i repo repo (%) ), while he second panel shows he was high in 00 01, bu small in he following years. In fac, he difference has been smaller during periods of inervenion of any ype, wih an average of 1.51% for periods of inervenion in and 1.76% for he whole period. This does no mean, however, ha oher effecs were no presen. Thus, for example, inervenions could have affeced he 19 As in March, 04, when he Board announced ha serilized purchases would correspond o up o 50% of oal purchases. See Banco de la República, Informe de la Juna Direciva al Congreso, March, 04, p

13 value of i i 90 repo repo i (%) and produce some addiional liquidiy effecs on he exchange rae (Neely, 06). We will argue in Secion IV.B ha serilized inervenions can parially explain he insignifican impac of he one-day ineres rae differenial on he explanaion of he nominal exchange rae. 16 Graph 5 Are inervenions serilized? i_repo 8 6 i_ i_1 1/7/00 12/22/00 12/7/01 11/22/02 11/7/03 10/22/04 10/7/05 9/22/06 9/7/07 8/22/08 8/6/09 7/23/10 7/8/11 6/22/ i_90 - i_repo (%) 0 - i_1 - i_repo (%) /7/00 12/22/00 12/7/01 11/22/02 11/7/03 10/22/04 10/7/05 9/22/06 9/7/07 8/22/08 8/6/09 7/23/10 7/8/11 6/22/12 Capial conrols were implemened beween May 7, 07 and Ocober 8, 08. Panel (a) of Graph 6 shows he wo indices calculaed by Rincón and Toro (11). Boh series, 1 ax and 2 ax indicae he equivalen ax (%) imposed on capial inflows, using he ex pos mauriy period for he differen ypes of inflows; 1 ax disinguishes he deposis denominaed in US$ dollars from hose denominaed in domesic The sysem of reserve requiremens was modified when he day-o-day inervenions were inroduced. See Juna Direciva del Banco de la República (08), July, Chaper IV. 12

14 currency, and 2 ax reas hem all as denominaed in domesic currency, he main difference beween boh being he devaluaion/revaluaion expecaions. 21 Marke paricipans had o deposi 40% of he inflow (deb and porfolio) 22 a he cenral bank during six monhs wihou ineres paymens. The variaion in each series is hen due o changes in he mauriy of he differen capial inflows. Boh indices show ha conrols in were much less severe han in , and no very differen from hose imposed in Macro prudenials were he main drivers of capial conrols in 07 08, alhough here was also a srong revaluaion of he exchange rae beween he peak reached in June 29, 06 (Col $ 26/US$) and June 10, 08 (Col $1670/US$). Inflaion was rising and was already siuaed above he cenral bank arge range in 06 09; he oupu gap calculaed by he saff of he cenral bank had been growing almos exponenially afer March 02, and was close o 3% of GDP in he firs par of 08; consumpion credi was growing a nominal raes close o 50% per year and oal credi a raes close o 30% during he second par of 07. Foreign direc invesmen explains he large bulk of oal capial inflows during he period 00 12, bu shor-erm capial inflows were relaively imporan during he second semeser of 06 and he firs few early monhs of ax uses he mehodology propossed by Ocampo and Tovar (03) and complemened by Rincón 2 21 The firs one (00), while he second one ax uses he mehodology propossed by Cárdenas and Barrera (1997) for Colombia and by Edwards and Rigobón (05) for Chile. 22 The firs (deb) imposed by he Board of he cenral bank, and he second (porfolio), some weeks laer, by he governmen. The Board also imposed a limi of 500% for he relaion beween purchases plus sales of foreign exchange derivaives (mainly forwards) and capial. See Juna Direciva del Banco de la República (07), p.75; (08), March, 08, pp and (11), p See Juna Direciva del Banco de la República (11), Marzo, pp The evoluion of FDI in appears in Juna Direciva del Banco de la República (11), July, pp

15 Graph 6 Capial conrols as macro-prudenial regulaion, S (a) Capial Conrols 4,000 3,500 3, (b) Inflaion (y/y (%) 100 2, , , ,000 Tax1 Tax /4/ /5/ /4/ /5/1998 9/4/00 8/5/02 7/5/04 6/5/06 5/5/08 4/5/10 ene-95 sep-96 may-98 ene-00 sep-01 may-03 ene-05 sep-06 may-08 ene-10 sep (c) GDP Gap (%) Consumpion (d) Credi Grow h (%) Toal mar-02 jun-03 sep-04 dic-05 mar-07 jun-08 sep-09 dic-10 mar-12 1/31/1995 7/31/1997 1/31/00 7/31/02 1/31/05 7/31/07 1/31/10 7/31/12 III. The Model Acual inervenions The economeric model we use comprises wo equaions: he reacion funcion of he Board of Direcors and he impac equaion. The firs one explains he dynamics of reionary inervenions, 24 and he second describes he behavior of exchange rae percen changes s = s s 1 ( s he log of he nominal exchange rae. 25 ) ne = γ 0 + γ1 1 + γ 2 j + γ γ + γ 5 π π + 1 j= 1 I I s s s D u (1) ( ) 4 ( ) 24 I closely follows Echavarría, Vásquez, and Villamizar (09) and Kamil (08) 25 We use daily informaion on he so called TRM, where S = TRM + 1. Thus allows us o compare daily exchange raes among differen counries. 14

16 δ0 δ1i δ2 1 δ3 ρcds, δ4( ) δ5 1 δ x 2 s = + + I + + i i + s + + u (2) Given he high frequency (daily) of he daa, he shocks of boh equaions can be described by he following GARCH processes: 26 u = σ ε ; σ = α + α u + β σ (3) ,0 1, u ( u ηu 1 ) λ λ λ ,0 2, 1 2, 1 2, β2σ 2, 1 = σ ε ; σ = α + α +, for λ>0 and η 1 (4) iid iid Wih ε N ( ), N ( ) 1 0,1 bra ε2 0,1, x = ( q, ax, s 1 ) I corresponds o he reionary purchases shown in Table 1 and in Graph 3, s j o he j= 1 variaion of he nominal exchange rae during he las marke days, 27 s s 1 o he percenage 1 difference beween he observed exchange rae and he equilibrium level repored by he saff of he cenral bank (see Secion II), ne D o a dummy variable equal o 1 when he cenral bank was a ne debor 28, and π π o he difference beween monhly inflaion and he (yearly) arge of he cenral bank. 29 on In equaion (2) we assume ha he daily devaluaion/revaluaion of he exchange rae s depends I (insrumened), on he US$ million purchases I, on risk ( CDS, measured as he five-year 1 ρ credi defaul swaps for Colombia), on i i (he difference beween he one-day ineres raes in he Unied 26 See Bollerslev, Chou, and Kroner (1992). An asymmeric power GARCH PGARCH(1,1) (Ding, Granger, and Engle, 1993), was esimaed for he errors of equaion (2). However, a simple GARCH(1,1) was esimaed in he case of equaion (1) given he nonlinear Tobi specificaion of he disurbances. 27 This is he period considered by Kamil (07) and by Echavarría, Vásquez, and Villamizar (09), and corresponds o he period conemplaed for he volailiy opions. Oher periods were ried wih similar resuls. 28 According o some, he Board should be worried (and inervene less) when he cenral bank is a ne debor, because in his case here is a lo of liquidiy in he marke. Banks do no have o come o he cenral bank o obain resources and ha weakens some of he channels of moneary policy. See Echavarría, Vásquez, and Villamizar (09) and he ciaions quoed here. 29 We also considered he alernaive variable π π expeced, where inflaion expecaions come from he monhly expecaions survey conduced by he cenral bank. Resuls are very similar for boh variables. Given ha his variable is observed on a monhly basis, we repeaed he corresponding value for he days of a given monh. This issue can be addressed in several ways such as Kalman Filer or oher economeric mehodologies. However, hese echniques are no free from saisical errors due o he esimaion of unobserved componens. Moreover, he economic auhoriies only observe he monhly values of his series. 15

17 Saes and Colombia 30 ), on he nominal exchange rae in Brazil Graph 6, brazil S, and on capial conrols ax ( ax in 2 ax was also ried wih similar resuls). The posiive saisical associaion beween he exchange rae in Colombia and Brazil (see Graph 2) is considered in Loaiza and Melo (12). The relevance of real shocks is ussed in Krugman and Obsfeld (02), ch.15, and is capured by he evoluion of he real exchange rae q. Rincón and Toro (11) include some real variables such as he erms of rade and he missalignmen of he real exchange rae in heir esimaion of he nominal exchange rae in Colombia, and Engel, Mark, and Wes (07) sugges o include produciviy and he curren accoun in he righ side. Chinn (12) proposses he relaive price of radables and non-radables as anoher relevan real shock. The 151 raders inerviewed by Murcia and Rojas (12), assign a role o some real variables such as he behavior of GDP, and unemploymen in Colombia and, even more, o unemploymen and fiscal resuls in he Unied Saes, and o growh in China. Dominguez (1999) assigns a prominen role o news on US GDP in he deerminaion of he US exchange rae. 1 We use daily informaion for I, I, s, 1, ρcds, brazil s i i, ax and ne D pos ; monhly informaion for π, q and s, and yearly informaion for π. The esimaion of he parameers of equaions (1) and (2) is carried ou according o he mulisep mehodology proposed by Iglesias and Phillips (12) for he case of simulaneous equaions under GARCH disurbances. The firs sep consiss of applying 2 a radiional 2SLS, he second sep esimaes he condiional variance σ 2, associaed wih he GARCH model in equaion (4), and he las sep esimaes he parameers of expression (2), obained from he following sandardized version of he equaion: s Iˆ I ρ i i s x u ˆ σ ˆ σ ˆ σ ˆ σ σ σ σ σ 1 CDS, 1 2 = δ0 + δ1 + δ2 + δ3 + δ4 + δ5 + δ + ˆ ˆ ˆ ˆ 2, 2, 2, 2, 2, 2, 2, 2, This procedure correcs for endogeneiy of he reionary inervenions I. The degree of endogeneiy for I is much lower since here were only few decisions aken by he auhoriies in he firs case. Moreover, he inclusion of I insead of 1 I eliminaes he possibiliy of endogeneiy. The sep relaed wih he esimaion of equaion (1) uses he mehodology suggesed by Calzolari and 30 We used he one-day annualized ineres rae for he reasury bills in Colombia and in he Unied Saes. 16

18 Fiorenini (1998) for Tobi models wih GARCH errors. 31 This esimaion is based on he sandard likelihood funcion of he Tobi model wih ime-varying condiional variance o accoun for he GARCH effec: ( I xβ ) xβ ln L = log(2 π ) + lnσ1 + ln Φ 0 2 I σ > 1 I = 0 σ1 Where model (3) wih u ne x = 1, I 1, s j, s 1 s 1, D, π π and j= 1 2 ( I xβ ) x β σ φ ( σ ) 1 x β x β 1 Φ( σ ) if I > 0 = + if = σ 1 I 2 σ 1 is compued from he GARCH Surprises Macroeconomic surprises (or shocks) could be he relevan variables in an environmen of flexible prices. 32 As such, Dominguez, Faum, and Vacek (13) evaluae he impac of boh he observed and he unexpeced change in inernaional reserves on he exchange rae. 33 The comparison beween he impac of boh he acual and he unexpeced inervenions could shed some addiional ligh on he relevan ransmission channels. In order o accoun for he unexpeced componen of he reacion funcion, we also esimaed he censured residual of equaion (1). This alernaive esimaion mehod allows us o capure he unexpeced componen of policy and, in heory, should capure all policy influences ha are no deermined by sysemaic responses o relevan economic variables. These surprises can be inerpreed as exogenous shocks o how cenral bankers value heir arges, o how heir views are aggregaed, changes in beliefs, or even sraegic consideraions affecing a privae agen's expecaions. I also has he advanage of removing poenial endogeneiy when esimaing equaion (2) since he resuling residuals are now uncorrelaed wih variables ha affec he policy decision process. We calculaed hese shocks as follows: ε = I E I X 31 Ignoring heeroskedasiciy resuls in esimaes ha are no consisen (Maddala and Nelson, 1975). Chen, Chang, and Yu (12) esimae a Tobi-GARCH model o he reacion funcion of he Japanese auhoriies. 32 See Barro (1976), Chrisiano, Eichenbaum, and Evans (1998) and Romer and Romer (1989), among ohers. See also Dornbusch (1980). 33 The auhors also consider surprises (insead of observed values) for he oher righ-hand variables, bu hey do no appear o be significan. 17

19 Where he las erm can be characerized (for he Tobi model wih GARCH errors) as: 0( ) ( ) E I X = I df I X I > ( I X ) E ( I X I ) = Pr > 0, > 0 xi β φ xi β σ 1 = Φ x β σ + 1 σ1 xiβ Φ σ1 And Φ ( ) and ( ) φ correspond o he CDF and PDF of a sandard normal disribuion. IV. Esimaion of he model IV.A. Acual inervenions Column (1) of Table 2 presens he resuls of esimaing a radiional Tobi regression. Column (2) considers only hose variables saisically significan in column (1), and column (3) presens he resuls for he alernaive Tobi-GARCH esimaion. The period considered sars in Sepember 2, 03, he firs day we for which we have informaion on inflaion expecaions (see foonoe 27), and ends on December 21, 07, he las day of reionary inervenions. Resuls are very similar when we sar a he beginning of he sample (January 3, 00). The (preferred) resuls on column (3) show ha he lagged value of he inervenion, he misalignmen of he exchange rae and he inflaion gap are significan a he 1% level, bu neiher he cumulaive variaion of he exchange rae (p value of 13%) nor he cenral bank ne posiion are significan a he 10% level. Significance levels are very similar for he radiional Tobi regression in column (1), hough he coefficiens differ, and he resuls in column (2) are similar o hose in column (1). We obained from column (3) Tobi-GARCH- and used i in he esimaion of equaion (2) for he deerminans of I ɵ s. 18

20 Table 2 The reacion funcion of he cenral bank ( I ɵ ), Sepember 2, 03 December 21, 07 Table 3 presens he main resuls for he esimaion of equaion (2), according o he mehodology proposed by Iglesias and Phillips (12). The number of observaions in Table 2 for he reacion funcion (1000) is differen from he number in Table 3 (10). As menioned above, we only considered he period Sepember 23, 04 April 30, 07 in he firs case, while in Tables 3 and 4 we considered he period Sepember 23, 04 March 29, 12, when one or he oher modaliy of inervenion place. A he boom of he Table we also presen a Wald Tes conrasing he coefficiens of I p and I ook I wih hose of I. The diagnosic ess on he residuals (auocorrelaion, remaining GARCH effecs) and sabiliy of 19

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he

More information

4. International Parity Conditions

4. International Parity Conditions 4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency

More information

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments BALANCE OF PAYMENTS DATE: 2008-05-30 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se

More information

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios

More information

Morningstar Investor Return

Morningstar Investor Return Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion

More information

Price elasticity of demand for crude oil: estimates for 23 countries

Price elasticity of demand for crude oil: estimates for 23 countries Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh

More information

Chapter 8: Regression with Lagged Explanatory Variables

Chapter 8: Regression with Lagged Explanatory Variables Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One

More information

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand 36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,

More information

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.

More information

Appendix D Flexibility Factor/Margin of Choice Desktop Research

Appendix D Flexibility Factor/Margin of Choice Desktop Research Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\223489-00\4

More information

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry

More information

Why Did the Demand for Cash Decrease Recently in Korea?

Why Did the Demand for Cash Decrease Recently in Korea? Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in

More information

Chapter 9 Bond Prices and Yield

Chapter 9 Bond Prices and Yield Chaper 9 Bond Prices and Yield Deb Classes: Paymen ype A securiy obligaing issuer o pay ineress and principal o he holder on specified daes, Coupon rae or ineres rae, e.g. 4%, 5 3/4%, ec. Face, par value

More information

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012 Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing Time-Varying Equiy Risk Premium The Japanese Sock Marke 1980-2012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA

More information

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements Inroducion Chaper 14: Dynamic D-S dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuing-edge

More information

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613. Graduae School of Business Adminisraion Universiy of Virginia UVA-F-38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised

More information

Foreign exchange market intervention and expectations: an empirical study of the yen/dollar exchange rate

Foreign exchange market intervention and expectations: an empirical study of the yen/dollar exchange rate Foreign exchange marke inervenion and expecaions: an empirical sudy of he yen/dollar exchange rae by Gabriele Galai a, William Melick b and Marian Micu a a Moneary and Economic Deparmen, Bank for Inernaional

More information

CRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis

CRISES AND THE FLEXIBLE PRICE MONETARY MODEL. Sarantis Kalyvitis CRISES AND THE FLEXIBLE PRICE MONETARY MODEL Saranis Kalyviis Currency Crises In fixed exchange rae regimes, counries rarely abandon he regime volunarily. In mos cases, raders (or speculaors) exchange

More information

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world

More information

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees

More information

Journal Of Business & Economics Research September 2005 Volume 3, Number 9

Journal Of Business & Economics Research September 2005 Volume 3, Number 9 Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy Yi-Kang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo

More information

Risk Modelling of Collateralised Lending

Risk Modelling of Collateralised Lending Risk Modelling of Collaeralised Lending Dae: 4-11-2008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies

More information

Vector Autoregressions (VARs): Operational Perspectives

Vector Autoregressions (VARs): Operational Perspectives Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101-115. Macroeconomericians

More information

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005 FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970-005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a

More information

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES OPENGAMMA QUANTITATIVE RESEARCH Absrac. Exchange-raded ineres rae fuures and heir opions are described. The fuure opions include hose paying

More information

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry Measuring he Effecs of Exchange Rae Changes on Invesmen in Ausralian Manufacuring Indusry Robyn Swif Economics and Business Saisics Deparmen of Accouning, Finance and Economics Griffih Universiy Nahan

More information

Hedging with Forwards and Futures

Hedging with Forwards and Futures Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buy-side of a forward/fuures

More information

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith** Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia

More information

The Grantor Retained Annuity Trust (GRAT)

The Grantor Retained Annuity Trust (GRAT) WEALTH ADVISORY Esae Planning Sraegies for closely-held, family businesses The Granor Reained Annuiy Trus (GRAT) An efficien wealh ransfer sraegy, paricularly in a low ineres rae environmen Family business

More information

Markit Excess Return Credit Indices Guide for price based indices

Markit Excess Return Credit Indices Guide for price based indices Marki Excess Reurn Credi Indices Guide for price based indices Sepember 2011 Marki Excess Reurn Credi Indices Guide for price based indices Conens Inroducion...3 Index Calculaion Mehodology...4 Semi-annual

More information

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion

More information

The Interest Rate Risk of Mortgage Loan Portfolio of Banks

The Interest Rate Risk of Mortgage Loan Portfolio of Banks The Ineres Rae Risk of Morgage Loan Porfolio of Banks A Case Sudy of he Hong Kong Marke Jim Wong Hong Kong Moneary Auhoriy Paper presened a he Exper Forum on Advanced Techniques on Sress Tesing: Applicaions

More information

Revisions to Nonfarm Payroll Employment: 1964 to 2011

Revisions to Nonfarm Payroll Employment: 1964 to 2011 Revisions o Nonfarm Payroll Employmen: 1964 o 2011 Tom Sark December 2011 Summary Over recen monhs, he Bureau of Labor Saisics (BLS) has revised upward is iniial esimaes of he monhly change in nonfarm

More information

Bid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation

Bid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation Bid-ask Spread and Order Size in he Foreign Exchange Marke: An Empirical Invesigaion Liang Ding* Deparmen of Economics, Macaleser College, 1600 Grand Avenue, S. Paul, MN55105, U.S.A. Shor Tile: Bid-ask

More information

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets?

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets? Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weak-form of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien

More information

Swiss National Bank Working Papers

Swiss National Bank Working Papers 2012-2 Swiss Naional Bank Working Papers Liquidiy Effecs of Quaniaive Easing on Long-Term Ineres Raes Signe Krogsrup, Samuel Reynard and Barbara Suer The views expressed in his paper are hose of he auhor(s)

More information

Chapter 6: Business Valuation (Income Approach)

Chapter 6: Business Valuation (Income Approach) Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he

More information

Option Put-Call Parity Relations When the Underlying Security Pays Dividends

Option Put-Call Parity Relations When the Underlying Security Pays Dividends Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 225-23 Opion Pu-all Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,

More information

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Finance and Economics Discussion Series Divisions of Research & Saisics and Moneary Affairs Federal Reserve Board, Washingon, D.C. Volailiy, Money Marke Raes, and he Transmission of Moneary Policy Seh

More information

Equities: Positions and Portfolio Returns

Equities: Positions and Portfolio Returns Foundaions of Finance: Equiies: osiions and orfolio Reurns rof. Alex Shapiro Lecure oes 4b Equiies: osiions and orfolio Reurns I. Readings and Suggesed racice roblems II. Sock Transacions Involving Credi

More information

Monetary Policy & Real Estate Investment Trusts *

Monetary Policy & Real Estate Investment Trusts * Moneary Policy & Real Esae Invesmen Truss * Don Bredin, Universiy College Dublin, Gerard O Reilly, Cenral Bank and Financial Services Auhoriy of Ireland & Simon Sevenson, Cass Business School, Ciy Universiy

More information

The Effect of Monetary Policy on Private Money Market Rates in Jamaica: An Empirical Microstructure Study. Derek Leith

The Effect of Monetary Policy on Private Money Market Rates in Jamaica: An Empirical Microstructure Study. Derek Leith The Effec of Moneary Policy on Privae Money Marke Raes in Jamaica: An Empirical Microsrucure Sudy Derek Leih Research Services Deparmen Research and Economic Programming Division Bank of Jamaica Absrac

More information

Determinants of Bank Long-term Lending Behavior in the Central African Economic and Monetary Community (CEMAC)

Determinants of Bank Long-term Lending Behavior in the Central African Economic and Monetary Community (CEMAC) Review of Economics & Finance Submied on 05/Jan./2012 Aricle ID: 1923-7529-2012-02-107-08 Consan, Fouopi Djiogap and Augusin Ngomsi Deerminans of Bank Long-erm Lending Behavior in he Cenral African Economic

More information

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction.

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction. Applied Economerics and Inernaional Developmen. AEID.Vol. 5-3 (5) EFFECT OF OIL PRICE SHOCKS IN THE U.S. FOR 1985-4 USING VAR, MIXED DYNAMIC AND GRANGER CAUSALITY APPROACHES AL-RJOUB, Samer AM * Absrac

More information

ARCH 2013.1 Proceedings

ARCH 2013.1 Proceedings Aricle from: ARCH 213.1 Proceedings Augus 1-4, 212 Ghislain Leveille, Emmanuel Hamel A renewal model for medical malpracice Ghislain Léveillé École d acuaria Universié Laval, Québec, Canada 47h ARC Conference

More information

Small and Large Trades Around Earnings Announcements: Does Trading Behavior Explain Post-Earnings-Announcement Drift?

Small and Large Trades Around Earnings Announcements: Does Trading Behavior Explain Post-Earnings-Announcement Drift? Small and Large Trades Around Earnings Announcemens: Does Trading Behavior Explain Pos-Earnings-Announcemen Drif? Devin Shanhikumar * Firs Draf: Ocober, 2002 This Version: Augus 19, 2004 Absrac This paper

More information

SPEC model selection algorithm for ARCH models: an options pricing evaluation framework

SPEC model selection algorithm for ARCH models: an options pricing evaluation framework Applied Financial Economics Leers, 2008, 4, 419 423 SEC model selecion algorihm for ARCH models: an opions pricing evaluaion framework Savros Degiannakis a, * and Evdokia Xekalaki a,b a Deparmen of Saisics,

More information

BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015. All officiell statistik finns på: www.scb.se Statistikservice: tfn 08-506 948 01

BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015. All officiell statistik finns på: www.scb.se Statistikservice: tfn 08-506 948 01 RKET BALANCE OF PAYMENTS AND FINANCIAL MA REPORT 2015 All officiell saisik finns på: www.scb.se Saisikservice: fn 08-506 948 01 All official saisics can be found a: www.scb.se Saisics service, phone +46

More information

Why does the correlation between stock and bond returns vary over time?

Why does the correlation between stock and bond returns vary over time? Why does he correlaion beween sock and bond reurns vary over ime? Magnus Andersson a,*, Elizavea Krylova b,**, Sami Vähämaa c,*** a European Cenral Bank, Capial Markes and Financial Srucure Division b

More information

Asymmetric Information, Perceived Risk and Trading Patterns: The Options Market

Asymmetric Information, Perceived Risk and Trading Patterns: The Options Market Asymmeric Informaion, Perceived Risk and Trading Paerns: The Opions Marke Guy Kaplanski * Haim Levy** March 01 * Bar-Ilan Universiy, Israel, Tel: 97 50 696, Fax: 97 153 50 696, email: guykap@biu.ac.il.

More information

Table of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities

Table of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities Table of conens Chaper 1 Ineres raes and facors 1 1.1 Ineres 2 1.2 Simple ineres 4 1.3 Compound ineres 6 1.4 Accumulaed value 10 1.5 Presen value 11 1.6 Rae of discoun 13 1.7 Consan force of ineres 17

More information

The impact of dark matter on sustainability of current account imbalance

The impact of dark matter on sustainability of current account imbalance 20 Inernaional Conference on Financial Managemen and Economics IPEDR vol. (20) (20) IACSIT Press, Singapore The impac of dark maer on susainabily of curren accoun imbalance ChienJung Ting + Deparmen of

More information

NBER WORKING PAPER SERIES IS THE U.S. CURRENT ACCOUNT DEFICIT SUSTAINABLE? AND IF NOT, HOW COSTLY IS ADJUSTMENT LIKELY TO BE?

NBER WORKING PAPER SERIES IS THE U.S. CURRENT ACCOUNT DEFICIT SUSTAINABLE? AND IF NOT, HOW COSTLY IS ADJUSTMENT LIKELY TO BE? NBER WORKING PAPER SERIES IS THE U.S. CURRENT ACCOUNT DEFICIT SUSTAINABLE? AND IF NOT, HOW COSTLY IS ADJUSTMENT LIKELY TO BE? Sebasian Edwards Working Paper 11541 hp://www.nber.org/papers/w11541 NATIONAL

More information

Investor sentiment of lottery stock evidence from the Taiwan stock market

Investor sentiment of lottery stock evidence from the Taiwan stock market Invesmen Managemen and Financial Innovaions Volume 9 Issue 1 Yu-Min Wang (Taiwan) Chun-An Li (Taiwan) Chia-Fei Lin (Taiwan) Invesor senimen of loery sock evidence from he Taiwan sock marke Absrac This

More information

USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES

USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES Mehme Nuri GÖMLEKSİZ Absrac Using educaion echnology in classes helps eachers realize a beer and more effecive learning. In his sudy 150 English eachers were

More information

Estimating the Term Structure with Macro Dynamics in a Small Open Economy

Estimating the Term Structure with Macro Dynamics in a Small Open Economy Esimaing he Term Srucure wih Macro Dynamics in a Small Open Economy Fousseni Chabi-Yo Bank of Canada Jun Yang Bank of Canada April 18, 2006 Preliminary work. Please do no quoe wihou permission. The paper

More information

Explaining the NZ-Australian exchange rate occasional paper

Explaining the NZ-Australian exchange rate occasional paper Wespac $ Insiuional Bank April 2002 Explaining he NZ-Ausralian exchange rae occasional paper Paul Conway and Richard Franulovich Wespac Insiuional Bank PO Box 691 Wellingon New Zealand Phone (644) 381-1414

More information

The forward premium puzzle is closely related to the failure of uncovered interest parity

The forward premium puzzle is closely related to the failure of uncovered interest parity World Economy - Forward Premium Puzzle 1 Forward Premium Puzzle Definiions and Relaed Conceps The forward premium puzzle is closely relaed o he failure of uncovered ineres pariy o hold, and he phenomenon

More information

Chapter 8 Student Lecture Notes 8-1

Chapter 8 Student Lecture Notes 8-1 Chaper Suden Lecure Noes - Chaper Goals QM: Business Saisics Chaper Analyzing and Forecasing -Series Daa Afer compleing his chaper, you should be able o: Idenify he componens presen in a ime series Develop

More information

The impact of Federal Reserve asset purchase programmes: another twist 1

The impact of Federal Reserve asset purchase programmes: another twist 1 Jack Meaning jm583@ken.ac.uk eng Zhu feng.zhu@bis.org The impac of ederal Reserve asse purchase programmes: anoher wis 1 This aricle examines he effeciveness of recen ederal Reserve asse purchase programmes.

More information

Term Structure of Prices of Asian Options

Term Structure of Prices of Asian Options Term Srucure of Prices of Asian Opions Jirô Akahori, Tsuomu Mikami, Kenji Yasuomi and Teruo Yokoa Dep. of Mahemaical Sciences, Risumeikan Universiy 1-1-1 Nojihigashi, Kusasu, Shiga 525-8577, Japan E-mail:

More information

Stock Market Liquidity and the Macroeconomy: Evidence from Japan

Stock Market Liquidity and the Macroeconomy: Evidence from Japan WP/05/6 Sock Marke Liquidiy and he Macroeconomy: Evidence from Japan Woon Gyu Choi and David Cook 2005 Inernaional Moneary Fund WP/05/6 IMF Working Paper IMF Insiue Sock Marke Liquidiy and he Macroeconomy:

More information

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Inernaional Journal of Accouning Research Vol., No. 7, 4 SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Mohammad Ebrahimi Erdi, Dr. Azim Aslani,

More information

Lecture Note on the Real Exchange Rate

Lecture Note on the Real Exchange Rate Lecure Noe on he Real Exchange Rae Barry W. Ickes Fall 2004 0.1 Inroducion The real exchange rae is he criical variable (along wih he rae of ineres) in deermining he capial accoun. As we shall see, his

More information

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking? Supplemenary Appendix for Depression Babies: Do Macroeconomic Experiences Affec Risk-Taking? Ulrike Malmendier UC Berkeley and NBER Sefan Nagel Sanford Universiy and NBER Sepember 2009 A. Deails on SCF

More information

SHB Gas Oil. Index Rules v1.3 Version as of 1 January 2013

SHB Gas Oil. Index Rules v1.3 Version as of 1 January 2013 SHB Gas Oil Index Rules v1.3 Version as of 1 January 2013 1. Index Descripions The SHB Gasoil index (he Index ) measures he reurn from changes in he price of fuures conracs, which are rolled on a regular

More information

How does working capital management affect SMEs profitability? This paper analyzes the relation between working capital management and profitability

How does working capital management affect SMEs profitability? This paper analyzes the relation between working capital management and profitability How does working capial managemen affec SMEs profiabiliy? Absrac This paper analyzes he relaion beween working capial managemen and profiabiliy for small and medium-sized firms by conrolling for unobservable

More information

Usefulness of the Forward Curve in Forecasting Oil Prices

Usefulness of the Forward Curve in Forecasting Oil Prices Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,

More information

expressed here and the approaches suggested are of the author and not necessarily of NSEIL.

expressed here and the approaches suggested are of the author and not necessarily of NSEIL. I. Inroducion Do Fuures and Opions rading increase sock marke volailiy Dr. Premalaa Shenbagaraman * In he las decade, many emerging and ransiion economies have sared inroducing derivaive conracs. As was

More information

INTEREST RATE PASS-THROUGH IN COLOMBIA: A MICRO-BANKING PERSPECTIVE* Rocío Betancourt Hernando Vargas Norberto Rodríguez**

INTEREST RATE PASS-THROUGH IN COLOMBIA: A MICRO-BANKING PERSPECTIVE* Rocío Betancourt Hernando Vargas Norberto Rodríguez** INTEREST RATE PASS-THROUGH IN COOMBIA: A MICRO-BANKING PERSPECTIVE* Rocío Beancour Hernando Vargas Norbero Rodríguez** Bogoá, Sepember 2006 *The opinions expressed in his paper are hose of he auhors and

More information

The Sensitivity of Corporate Bond Volatility to Macroeconomic Announcements. by Nikolay Kosturov* and Duane Stock**

The Sensitivity of Corporate Bond Volatility to Macroeconomic Announcements. by Nikolay Kosturov* and Duane Stock** The Sensiiviy of Corporae Bond Volailiy o Macroeconomic nnouncemens by Nikolay Kosurov* and Duane Sock** * Michael F.Price College of Business, Universiy of Oklahoma, 307 Wes Brooks, H 205, Norman, OK

More information

Present Value Methodology

Present Value Methodology Presen Value Mehodology Econ 422 Invesmen, Capial & Finance Universiy of Washingon Eric Zivo Las updaed: April 11, 2010 Presen Value Concep Wealh in Fisher Model: W = Y 0 + Y 1 /(1+r) The consumer/producer

More information

The Determinants of Trade Credit: Vietnam Experience

The Determinants of Trade Credit: Vietnam Experience Proceedings of he Second Asia-Pacific Conference on Global Business, Economics, Finance and Social Sciences (AP15Vienam Conference) ISBN: 978-1-63415-833-6 Danang, Vienam, 10-12 July 2015 Paper ID: V536

More information

LEASING VERSUSBUYING

LEASING VERSUSBUYING LEASNG VERSUSBUYNG Conribued by James D. Blum and LeRoy D. Brooks Assisan Professors of Business Adminisraion Deparmen of Business Adminisraion Universiy of Delaware Newark, Delaware The auhors discuss

More information

The Asymmetric Effects of Oil Shocks on an Oil-exporting Economy*

The Asymmetric Effects of Oil Shocks on an Oil-exporting Economy* CUADERNOS DE ECONOMÍA, VOL. 47 (MAYO), PP. 3-13, 2010 The Asymmeric Effecs of Oil Shocks on an Oil-exporing Economy* Omar Mendoza Cenral Bank of Venezuela David Vera Ken Sae Universiy We esimae he effecs

More information

Consumer sentiment is arguably the

Consumer sentiment is arguably the Does Consumer Senimen Predic Regional Consumpion? Thomas A. Garre, Rubén Hernández-Murillo, and Michael T. Owyang This paper ess he abiliy of consumer senimen o predic reail spending a he sae level. The

More information

What does the Bank of Russia target?

What does the Bank of Russia target? SBERBANK OF RUSSIA CENTRE FOR MACROECONOMIC RESEARCH, SBERBANK 5 Augus 2010 Wha does he Bank of Russia arge? The crisis has promped he Russian Cenral Bank (CBR) o review is policies drasically. New frameworks

More information

Do Credit Rating Agencies Add Value? Evidence from the Sovereign Rating Business Institutions

Do Credit Rating Agencies Add Value? Evidence from the Sovereign Rating Business Institutions Iner-American Developmen Bank Banco Ineramericano de Desarrollo (BID) Research Deparmen Deparameno de Invesigación Working Paper #647 Do Credi Raing Agencies Add Value? Evidence from he Sovereign Raing

More information

The Influence of Positive Feedback Trading on Return Autocorrelation: Evidence for the German Stock Market

The Influence of Positive Feedback Trading on Return Autocorrelation: Evidence for the German Stock Market The Influence of Posiive Feedback Trading on Reurn Auocorrelaion: Evidence for he German Sock Marke Absrac: In his paper we provide empirical findings on he significance of posiive feedback rading for

More information

Internal and External Factors for Credit Growth in Macao

Internal and External Factors for Credit Growth in Macao Inernal and Exernal Facors for Credi Growh in Macao Nicholas Cheang Research and Saisics Deparmen, Moneary Auhoriy of Macao Absrac Commercial banks are dominan eniies in he Macao financial secor. They

More information

DNB W o r k i n g P a p e r. Stock market performance and pension fund investment policy: rebalancing, free f loat, or market timing?

DNB W o r k i n g P a p e r. Stock market performance and pension fund investment policy: rebalancing, free f loat, or market timing? DNB Working Paper No. 154 / November 2007 Jacob Bikker, Dirk Broeders and Jan de Dreu DNB W o r k i n g P a p e r Sock marke performance and pension fund invesmen policy: rebalancing, free f loa, or marke

More information

Order Flows, Delta Hedging and Exchange Rate Dynamics

Order Flows, Delta Hedging and Exchange Rate Dynamics rder Flows Dela Hedging and Exchange Rae Dynamics Bronka Rzepkowski # Cenre d Eudes rospecives e d Informaions Inernaionales (CEII) ABSTRACT This paper proposes a microsrucure model of he FX opions and

More information

An asymmetric process between initial margin requirements and volatility: New evidence from Japanese stock market

An asymmetric process between initial margin requirements and volatility: New evidence from Japanese stock market African Journal of Business Managemen Vol.6 (9), pp. 870-8736, 5 July, 0 Available online a hp://www.academicjournals.org/ajbm DOI: 0.5897/AJBM.88 ISSN 993-833 0 Academic Journals Full Lengh Research Paper

More information

Florida State University Libraries

Florida State University Libraries Florida Sae Universiy Libraries Elecronic Theses, Treaises and Disseraions The Graduae School 2008 Two Essays on he Predicive Abiliy of Implied Volailiy Consanine Diavaopoulos Follow his and addiional

More information

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya.

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya. Principal componens of sock marke dynamics Mehodology and applicaions in brief o be updaed Andrei Bouzaev, bouzaev@ya.ru Why principal componens are needed Objecives undersand he evidence of more han one

More information

Chartists and Fundamentalists in. Emerging Currency Markets

Chartists and Fundamentalists in. Emerging Currency Markets Chariss and Fundamenaliss in Emerging Currency Markes Gerben J. de Zwar Robeco Quaniaive Sraegies Coolsingel 120, Roerdam NL-3011 AG, The Neherlands g.j.de.zwar@robeco.nl Thijs D. Markwa Economeric Insiue

More information

Estimating the immediate impact of monetary policy shocks on the exchange rate and other asset prices in Hungary

Estimating the immediate impact of monetary policy shocks on the exchange rate and other asset prices in Hungary Esimaing he immediae impac of moneary policy shocks on he exchange rae and oher asse prices in Hungary András Rezessy Magyar Nemzei Bank 2005 Absrac The paper applies he mehod of idenificaion hrough heeroskedasiciy

More information

MSCI Index Calculation Methodology

MSCI Index Calculation Methodology Index Mehodology MSCI Index Calculaion Mehodology Index Calculaion Mehodology for he MSCI Equiy Indices Index Mehodology MSCI Index Calculaion Mehodology Conens Conens... 2 Inroducion... 5 MSCI Equiy Indices...

More information

Does informed trading occur in the options market? Some revealing clues

Does informed trading occur in the options market? Some revealing clues Does informed rading occur in he opions marke? Some revealing clues Blasco N.(1), Corredor P.(2) and Sanamaría R. (2) (1) Universiy of Zaragoza (2) Public Universiy of Navarre Absrac This paper analyses

More information

Performance Center Overview. Performance Center Overview 1

Performance Center Overview. Performance Center Overview 1 Performance Cener Overview Performance Cener Overview 1 ODJFS Performance Cener ce Cener New Performance Cener Model Performance Cener Projec Meeings Performance Cener Execuive Meeings Performance Cener

More information

I. Basic Concepts (Ch. 1-4)

I. Basic Concepts (Ch. 1-4) (Ch. 1-4) A. Real vs. Financial Asses (Ch 1.2) Real asses (buildings, machinery, ec.) appear on he asse side of he balance shee. Financial asses (bonds, socks) appear on boh sides of he balance shee. Creaing

More information

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs Journal of Finance and Accounancy Conrarian insider rading and earnings managemen around seasoned equiy offerings; SEOs ABSTRACT Lorea Baryeh Towson Universiy This sudy aemps o resolve he differences in

More information

The Kinetics of the Stock Markets

The Kinetics of the Stock Markets Asia Pacific Managemen Review (00) 7(1), 1-4 The Kineics of he Sock Markes Hsinan Hsu * and Bin-Juin Lin ** (received July 001; revision received Ocober 001;acceped November 001) This paper applies he

More information

An Empirical Study on Capital Structure and Financing Decision- Evidences from East Asian Tigers

An Empirical Study on Capital Structure and Financing Decision- Evidences from East Asian Tigers An Empirical Sudy on Capial Srucure and Financing Decision- Evidences from Eas Asian Tigers Dr. Jung-Lieh Hsiao and Ching-Yu Hsu, Naional Taipei Universiy, Taiwan Dr. Kuang-Hua Hsu, Chaoyang Universiy

More information

Ownership structure, liquidity, and trade informativeness

Ownership structure, liquidity, and trade informativeness Journal of Finance and Accounancy ABSTRACT Ownership srucure, liquidiy, and rade informaiveness Dan Zhou California Sae Universiy a Bakersfield In his paper, we examine he relaionship beween ownership

More information

KONSTANTĪNS BEŅKOVSKIS IS THERE A BANK LENDING CHANNEL OF MONETARY POLICY IN LATVIA? EVIDENCE FROM BANK LEVEL DATA

KONSTANTĪNS BEŅKOVSKIS IS THERE A BANK LENDING CHANNEL OF MONETARY POLICY IN LATVIA? EVIDENCE FROM BANK LEVEL DATA ISBN 9984 676 20 X KONSTANTĪNS BEŅKOVSKIS IS THERE A BANK LENDING CHANNEL OF MONETARY POLICY IN LATVIA? EVIDENCE FROM BANK LEVEL DATA 2008 WORKING PAPER Lavias Banka, 2008 This source is o be indicaed

More information

How Useful are the Various Volatility Estimators for Improving GARCH-based Volatility Forecasts? Evidence from the Nasdaq-100 Stock Index

How Useful are the Various Volatility Estimators for Improving GARCH-based Volatility Forecasts? Evidence from the Nasdaq-100 Stock Index Inernaional Journal of Economics and Financial Issues Vol. 4, No. 3, 04, pp.65-656 ISSN: 46-438 www.econjournals.com How Useful are he Various Volailiy Esimaors for Improving GARCH-based Volailiy Forecass?

More information

ISSN - 2038-6931 WORKING PAPER 02/2010

ISSN - 2038-6931 WORKING PAPER 02/2010 ISSN - 2038-6931 WORKING PAPER 02/2010 Copyrigh CREG 2010 Tui i dirii riservai The effecs of ambiguous cenral bank s communicaion on money marke raes: he sudy of a special case Carlo Di Giorgio a, Alessio

More information

Understanding the Profitability of Pairs Trading

Understanding the Profitability of Pairs Trading Undersanding he Profiabiliy of Pairs Trading Sandro C. Andrade UC Berkeley Vadim di Piero Norhwesern Mark S. Seasholes UC Berkeley This Version February 15, 2005 Absrac This paper links uninformed demand

More information