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Do China and oil exporters influence major currency configurations?

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  • Fratzscher, Marcel
  • Mehl, Arnaud

Abstract

This paper analyses the impact of the shift away from a US dollar focus of systemically important emerging market economies (EMEs) on configurations between the US dollar, the euro and the yen. Given the difficulty that fixed or managed US dollar exchange rate regimes remain pervasive and reserve compositions mostly kept secret, the identification strategy of the paper is to analyse the market impact on major currency pairs of official statements made by EME policy-makers about their exchange rate regime and reserve composition. Developing a novel database for 18 EMEs, we find that such statements not only have a statistically but also an economically significant impact on the euro, and to a lesser extent the yen against the US dollar. The findings suggest that communication hinting at a weakening of EMEs' US dollar focus contributed substantially to the appreciation of the euro against the US dollar in recent years. Interestingly, EME policy-makers appear to have become more cautious in their communication more recently. Overall, the results underscore the growing systemic importance of EMEs for global exchange rate configurations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 37 (2009)
Issue (Month): 3 (September)
Pages: 335-358

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Handle: RePEc:eee:jcecon:v:37:y:2009:i:3:p:335-358

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Communication Exchange rate regime Reserves Euro Dollar Emerging economies;

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References

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  1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  2. David-Jan Jansen & Jakob de Haan, 2005. "Were Verbal Efforts to Support the Euro Effective? A High-Frequency Analysis of ECB Statements," DNB Working Papers 033, Netherlands Central Bank, Research Department.
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  4. Siklos, Pierre & Bohl , Martin, 2006. "Policy words and policy deeds: the ECB and the euro," Research Discussion Papers 2/2006, Bank of Finland.
  5. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob de Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," DNB Working Papers 170, Netherlands Central Bank, Research Department.
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  10. Fratzscher, Marcel, 2008. "How successful is the G7 in managing exchange rates?," Working Paper Series 0952, European Central Bank.
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  13. Marcel Fratzscher, 2008. "Oral Interventions Versus Actual Interventions in Fx Markets - An Event-Study Approach," Economic Journal, Royal Economic Society, vol. 118(530), pages 1079-1106, 07.
  14. Fratzscher, Marcel, 2008. "Communication and exchange rate policy," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1651-1672, December.
  15. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
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Cited by:
  1. Fratzscher, Marcel & Mehl, Arnaud, 2011. "China's dominance hypothesis and the emergence of a tri-polar global currency system," Working Paper Series 1392, European Central Bank.
  2. Fratzscher, Marcel, 2008. "How successful is the G7 in managing exchange rates?," Working Paper Series 0952, European Central Bank.

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