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

Listed author(s):
  • Bowden Roger J.

    ()

    (Victoria University of Wellington)

  • Zhu Jennifer Z

    ()

    (Victoria University of Wellington)

Registered author(s):

    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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    File URL: https://www.degruyter.com/view/j/snde.2007.11.3/snde.2007.11.3.1432/snde.2007.11.3.1432.xml?format=INT
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    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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    1. Christoph Schleicher, 2002. "An Introduction to Wavelets for Economists," Staff Working Papers 02-3, Bank of Canada.
    2. Fernandez Viviana P, 2005. "The International CAPM and a Wavelet-Based Decomposition of Value at Risk," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-37, December.
    3. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
    4. Kaminsky, Graciela, 1993. "Is There a Peso Problem? Evidence from the Dollar/Pound Exchange Rate, 1976-1987," American Economic Review, American Economic Association, vol. 83(3), pages 450-472, June.
    5. Bowden, Roger J, 1977. "Spectral Utility Functions and the Design of a Stationary System," Econometrica, Econometric Society, vol. 45(4), pages 1007-1012, May.
    6. Connor Jeff & Rossiter Rosemary, 2005. "Wavelet Transforms and Commodity Prices," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-22, March.
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