Micro Approaches to Foreign Exchange Determination

Evans, Martin D.D.; Rime, Dagfinn

doi:10.1002/9781118445785.ch3

Cited by 13 publications

(4 citation statements)

References 52 publications

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“…The former has a positive implication for future output growth, while the latter has the converse and hence the two have different implications on exchange rate movements." (p.457, Cheung and Chinn 2001) 14 See also Evans and Lyons (2008) and Evans and Rime (2012) for discussion of the market mechanics of how macro news affects exchange rates through trading behavior.…”

Section: Exchange Rate News From Macroeconomic Fundamentalsmentioning

confidence: 99%

A Fundamental Connection: Exchange Rates and Macroeconomic Expectations

Stavrakeva¹,

Tang²

2020

Federal Reserve Bank of Boston Research Department Working Papers

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This paper presents new stylized facts about exchange rates and their relationship with macroeconomic fundamentals. We show that macroeconomic surprises explain a large majority of the variation in nominal exchange rate changes at a quarterly frequency. Using a novel present value decomposition of exchange rate changes that is disciplined with survey forecast data, we show that macroeconomic surprises are also a very important driver of the currency risk premium component and explain about half of its variation. These surprises have even greater explanatory power during economic downturns and periods of financial uncertainty.

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Section: Exchange Rate News From Macroeconomic Fundamentalsmentioning

confidence: 99%

A Fundamental Connection: Exchange Rates and Macroeconomic Expectations

Stavrakeva¹,

Tang²

2020

Federal Reserve Bank of Boston Research Department Working Papers

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“…As highlighted in Section , financial researchers generally adopt different assumptions about exchange rate dynamics, and a commonly accepted assumption is the impact of macroeconomic conditions. As has also been outlined in Section , a very recent prominent study (Evans and Rime, ) has decomposed the influence of economic conditions into a macro and micro perspective, and emphasized on the knowledge about different determinants at the dealer‐centric level (i.e. microeconomic level) as the key factor in characterizing exchange rate.…”

Section: Significance and Implications Of The Researchmentioning

confidence: 99%

“…While daily data for the exchange rates are generally available, data for inflation rate (which is a macro determinant of a country's economy) is usually available on an aggregate time resolution (monthly or quarterly basis). This lack of knowledge leads to the incorporation of the stakeholders’ belief and speculation into the respective financial model at both micro and macro levels, as has been outlined by existing studies (Evans and Rime, ). Uncertainty involved in this respect also has created a cynical view about the ability of a statistical model to capture the dynamics better than a random walk process (Meese and Rogoff, ).…”

Section: Introductionmentioning

confidence: 99%

Linear Relationship Between the Aud/Usd Exchange Rate and the Respective Stock Market Indices: A Computational Finance Perspective

Imam

Tickle

Ahmed

et al. 2012

Intell. Sys. Acc. Fin. Mgmt.

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SUMMARY In the recent era, computational intelligence techniques have found an increased popularity in addressing varied financial issues, including foreign exchange rate prediction. This article, through an intelligent system research framework, relates the Australian dollar (AUD)/US dollar (USD) exchange rate to the Australian and the US stock market indices. Information for exchange rate, All Ordinaries Index (AOI) and Dow Jones Industrial Average (DJI) for the trading days over the period January 1991–May 2011 is considered in this research. Utilizing a set of statistical and computational intelligence techniques, the research establishes that the AUD/USD exchange rate is best estimated by a linear forecast model compared with the nonlinear and ensemble‐based intelligent system models. This research further highlights that, among the competing linear models, the model with both the stock market indices and historical exchange rate values as the predictors is the best forecaster. Parameters of the linear model are deduced through a Monte Carlo stochastic approach. Relative importance of the predictors is also studied, and the influence of historical exchange rates, the immediate impact of AOI and the lagged effect of DJI are noted. Copyright © 2012 John Wiley & Sons, Ltd.

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“…Recent surveys of the literature examining the effect of forex order flows on exchange rates include Osler (2009), Evans (2011) andEvans and Rime (2012).…”

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confidence: 99%