Half-lives of currencies and aggregation bias

Kunkler, Michael; MacDonald, Ronald

doi:10.1016/j.econlet.2015.07.030

Cited by 17 publications

(8 citation statements)

References 4 publications

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“…is the ith=ηth exchange rate; p i C,t is the ith relative currency rate and p η C,t is the numéraire (ηth) relative currency rate (see Kunkler & MacDonald, 2015).…”

Section: Equivalencementioning

confidence: 99%

“…where i ¼ 0, …, N S ; t ¼ 0, …, T and p i=j S,t is the ith=jth exchange rate. The extra equilibrium-condition equation in ( 4) is added so that a unique solution is possible (Kunkler & MacDonald, 2015).…”

Section: Equivalencementioning

confidence: 99%

“…Another example is invariant currency indexes, which are normalised bilateral exchange rates that are independent of the choice of numéraire (Hovanov et al, 2004). Similarly, relative currency rates are also independent of the choice of numéraire and are priced relative to an equally weighted collection of currencies, so are tradable multilateral exchange rates (Kunkler & MacDonald, 2015). Both invariant currency indexes and relative currency rates are based on a fixed predefined collection of currencies.…”

Section: Related Literaturementioning

confidence: 99%

“…Like invariant currency indexes, relative currency rates are also independent of the choice of numéraire for a collection of currencies. However, a relative currency rate is priced relative to an equally‐weighted collection of currencies (Kunkler & MacDonald, 2015). As a result, relative currency rates are tradable multilateral exchange rates, which provide transparency on the underlying currency positions.…”

Section: Introductionmentioning

confidence: 99%

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Synthetic money: Addressing the budget‐constraint issue

Kunkler¹

2022

Int. J Fin Econ

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A synthetic currency attempts to mimic a target currency with an optimal portfolio of other currencies, without having a position in the target currency. The original construction methodology of a synthetic currency imposed a budget constraint such that the portfolio weights sum to a non‐zero value, say. However, a synthetic currency is a portfolio of invariant currency indexes, rather than a portfolio of currency positions. In this article, we show that invariant currency indexes are tradable multilateral exchange rates. Consequently, the sum‐to‐x budget constraint unintentionally creates a non‐zero position in the target currency. We address this budget‐constraint issue by replacing the sum‐to‐x budget constraint with a sum‐to‐zero budget constraint, which correctly enforces a zero position in the target currency. Once the budget‐constraint issue is addressed, investors are faced with the fact that synthetic money is unable to mimic significant currency‐specific movements in target currencies.

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“…is the ith=ηth exchange rate; p i C,t is the ith relative currency rate and p η C,t is the numéraire (ηth) relative currency rate (see Kunkler & MacDonald, 2015).…”

Section: Equivalencementioning

confidence: 99%

Section: Equivalencementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Synthetic money: Addressing the budget‐constraint issue

Kunkler¹

2022

Int. J Fin Econ

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“…Kunkler and MacDonald (2015) show that, in log terms, a system of S N bilateral exchange rates with respect to a numeraire (0th) currency can be decomposed into a unique set of 1 + S N global prices for each currency:…”

Section: Global Prices For Currenciesmentioning

confidence: 99%

The Price of Gold as a Hedge Against the US Dollar

Kunkler¹,

MacDonald²

2016

AFL

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Abstract:We address the issue of whether the dollar (US dollar) price of gold can be used to hedge the external purchasing power of the dollar. We decompose the dollar price of gold into two parts: a global price of gold and a global price of the dollar. We find that there is no correlation between fluctuations in the global price of gold and fluctuations in the global price of the dollar, or fluctuations in the global price of any individual currency. We show that the observed negative correlation reported in the literature between fluctuations in the dollar price of gold and fluctuations in the dollar is caused by the appearance of the dollar in both variables. The dollar appears in the dollar price of gold with a negative sign that tilts the correlation with fluctuations in the dollar towards negative one.

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The Law of One Food Price

Clements

2022

Open Econ Rev

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Half-lives of currencies and aggregation bias

Cited by 17 publications

References 4 publications

Synthetic money: Addressing the budget‐constraint issue

Synthetic money: Addressing the budget‐constraint issue

The Price of Gold as a Hedge Against the US Dollar

The Law of One Food Price

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