IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

International Risk-Averse Arbitrage and Exchange Rate Volatility - L’arbitraggio internazionale “risk-averse” e volatilità del tasso di cambio

  • Tseng, Hui-Kuan


    (The University of North Carolina at Charlotte, Department of Economics)

Registered author(s):

    A small open economy model emphasizing the endogenous interestrate arbitrage was employed to examine whether arbitrage activities would dampen or augment exchange rate volatility against random disturbances. Based on numerical simulation, increased risk aversion of arbitragers was observed to dampen exchange rate volatility that is subject to random disturbances resulting from domestic absorption, domestic money supply, and foreign interest rates. On the contrary, volatility was augmented by random disturbance from foreign income. Results of sensitivity analysis suggest that the role of arbitragers’ risk aversion could be associated with the degree of goods price flexibility, particularly when domestic monetary, or domestic income, or foreign income disturbances are present. These findings call for future empirical studies to address the role of price flexibility for improved estimates of parameter values that govern the exchange rate behavior in the model. - Al fine di esaminare se l’arbitraggio riduce o aumenta la volatilità del tasso di cambio in presenza di disturbi casuali, è stato preso in considerazione un modello di piccola economia ove è enfatizzato l’arbitraggio endogeno sui tassi di interesse. Sulla base di simulazioni numeriche è stato evidenziato che l’aumento dell’avversione al rischio da parte degli arbitraggisti preclude l’aumento della volatilità del tasso di cambio, il quale è soggetto a disturbi casuali conseguenti ad assorbimento interno, offerta interna di moneta e tassi di interesse esteri. Al contrario la volatilità aumenta in presenza di disturbi casuali nel reddito estero. I risultati delle analisi di sensitività suggeriscono che il ruolo dell’avversione al rischio degli arbitraggisti potrebbe essere associato al grado di flessibilità del prezzo dei beni, specialmente in presenza di disturbi monetari o di reddito, sia interno che estero. Queste evidenze richiedono che future analisi empiriche determinino qual è il ruolo della flessibilità del prezzo per il comportamento del tasso di cambio nel modello considerato.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

    Volume (Year): 64 (2011)
    Issue (Month): 4 ()
    Pages: 503-524

    in new window

    Handle: RePEc:ris:ecoint:0634
    Contact details of provider: Postal: Via Garibaldi 4, 16124 Genova, Italy
    Phone: +39 010 27041
    Fax: +39 010 2704222
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ris:ecoint:0634. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Procopio)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.