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Exchange rate misalignments in frequency domain

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  • Grossmann, Axel
  • Orlov, Alexei G.

Abstract

This research uses spectral methodology to study how the volatility of spot exchange rate misalignments changed as a result of signing of the Plaza Accord and introduction of the Euro. We study the deviations of Canadian Dollar/US Dollar, Japanese Yen/US Dollar and US Dollar/British Pound spot exchange rates from CPI- and TPI-based equilibrium exchange rates. The spectral density results indicate that the Plaza Accord and the introduction of the Euro helped reduce the volatility of exchange rate misalignments and excess returns for the Yen and the Pound along virtually all frequency components. On the other hand, the Canadian Dollar/US Dollar misalignments are characterized by higher volatility after the adoption of the Plaza Accord.

Suggested Citation

  • Grossmann, Axel & Orlov, Alexei G., 2012. "Exchange rate misalignments in frequency domain," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 185-199.
  • Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:185-199
    DOI: 10.1016/j.iref.2012.03.001
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    Cited by:

    1. Grossmann, Axel & Love, Inessa & Orlov, Alexei G., 2014. "The dynamics of exchange rate volatility: A panel VAR approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 1-27.
    2. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "Structural breaks and long memory in modeling and forecasting volatility of foreign exchange markets of oil exporters: The importance of scheduled and unscheduled news announcements," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 101-119.
    3. Tai, Meng-Yi & Chao, Chi-Chur & Hu, Shih-Wen & Lai, Ching-Chong & Wang, Vey, 2014. "Monetary policy and price dynamics in a commodity futures market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 372-379.

    More about this item

    Keywords

    Equilibrium exchange rates; Spectral analysis; Plaza Accord; Euro;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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