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Which Are the World's Wobblier Currencies? Reference Exchange Rates and Their Variation

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  • Bowden Roger J.

    ()
    (Victoria University of Wellington)

  • Zhu Jennifer Z

    ()
    (Victoria University of Wellington)

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    Abstract

    Measuring country exchange rates relative to a common reference basket results in a set of no-arbitrage prices, unlike trade-weighted indexes, the usual method of comparing country exchange rate histories. The reference basket is analogous to a portfolio, and its choice can be resolved by drawing on required economic interpretations or uses. We use currency reference rates to examine the historical variability of different currencies over designated cyclical bands. The temporal decompositions used are those provided by wavelet analysis, which is light on maintained assumptions about data generating processes. Some countries, notably Japan and New Zealand do exhibit a powerful but irregular medium term cycle, while others are much more stable. Implications are briefly examined for investment, hedging, monetary policy and common currency studies.

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    Bibliographic Info

    Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

    Volume (Year): 11 (2007)
    Issue (Month): 3 (September)
    Pages: 1-32

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    Handle: RePEc:bpj:sndecm:v:11:y:2007:i:3:n:5

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/snde

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    Cited by:
    1. Roger Bowden & Jennifer Zhu, 2010. "Multi-scale variation, path risk and long-term portfolio management," Quantitative Finance, Taylor & Francis Journals, vol. 10(7), pages 783-796.

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