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Macroeconomic Factors and the Balanced Value of the Czech Koruna/Euro Exchange Rate (in English)

Author

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  • Jan Brùha

    (Czech National Bank, Prague)

  • Alexis Derviz

    (Czech National Bank, Charles University, and the Institute of Information Theory and Automation, Prague)

Abstract

The authors study the dependence of the Czech koruna’s exchange rate to the euro on risk factors that cannot be reduced to standard macroeconomic fundamentals. For this purpose, they construct an international asset-pricing model in which the exchange rate is codetermined by a risk factor imperfectly correlated with other priced risks in the economy. The model embeds the standard no-arbitrage setup. It also contains an additional equation that links the autarchic currency price with the foreign-exchange order flow. In the state-space form, the unobserved variables that determine the dynamics of the asset markets, the autarchic exchange rate, and the FX order flow span a number of macroeconomic and latent risk factors. The model for the Czech koruna/euro exchange rate uses Kalman filter techniques. The results indicate the existence of a “non-fundamental” source of systematic divergence between the observed and the autarchic (i.e. fundamental) FX returns.

Suggested Citation

  • Jan Brùha & Alexis Derviz, 2006. "Macroeconomic Factors and the Balanced Value of the Czech Koruna/Euro Exchange Rate (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 56(7-8), pages 318-343, July.
    • Handle: RePEc:fau:fauart:v:56:y:2006:i:7-8:p:318-343
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    File URL: http://journal.fsv.cuni.cz/storage/1061_s_318_343.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Luboš Komárek & Martin Motl, 2012. "Behaviorální a fundamentální rovnovážný měnový kurz české koruny [Behavioural and Fundamental Equilibrium Exchange Rate of the Czech Koruna]," Politická ekonomie, Prague University of Economics and Business, vol. 2012(2), pages 147-166.

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    More about this item

    Keywords

    exchange rate; latent risk; order flow; pricing kernel; state space;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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