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Are Different-Currency Assets Imperfect Substitutes?

In: Studies in Foreign Exchange Economics

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  • Martin D. D. Evans
  • Richard K. Lyons

Abstract

The idea that different-currency assets are imperfect substitutes occupies an important place within exchange-rate economics. It is still invoked, for example, for why sterilized intervention can be effective. And theoretical work continues to rely on this assumption. Yet, supportive empirical evidence is scant. This paper addresses the gap between theory and empirics. We test imperfect substitutability in a new, more powerful way and find it strongly supported…

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  • Martin D. D. Evans & Richard K. Lyons, 2017. "Are Different-Currency Assets Imperfect Substitutes?," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 10, pages 415-456, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813148543_0010
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    2. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2004. "Chasing the smokestack: strategic policymaking with multiple instruments," Regional Science and Urban Economics, Elsevier, vol. 34(4), pages 387-410, July.
    3. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2012. "The Federal Reserve as an Informed Foreign Exchange Trader: 1973–1995," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 127-160, March.
    4. M. Kayalica & Sajal Lahiri, 2005. "Strategic Environmental Policies in the Presence of Foreign Direct Investment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(1), pages 1-21, January.
    5. Pierre Salmon, 2003. "The assignment of powers in an open-ended European Union," Post-Print hal-00445601, HAL.
    6. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2016. "On the Evolution of US Foreign-Exchange-Market Intervention: Thesis, Theory, and Institutions," NBER Chapters, in: Strained Relations: US Foreign-Exchange Operations and Monetary Policy in the Twentieth Century, pages 1-26, National Bureau of Economic Research, Inc.
    7. Timo Wollmershäuser, 2003. "Sterilised foreign exchange market interventions - a controversial monetary instrument," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 56(19), pages 34-44, October.
    8. Lukas Menkhoff, 2013. "Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies," The World Economy, Wiley Blackwell, vol. 36(9), pages 1187-1208, September.
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    10. Fatum, Rasmus, 2015. "Foreign exchange intervention when interest rates are zero: Does the portfolio balance channel matter after all?," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 185-199.
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    14. Lukas Menkhoff, 2010. "High‐Frequency Analysis Of Foreign Exchange Interventions: What Do We Learn?," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 85-112, February.
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    17. Richard W. Evans, 2007. "Is openness inflationary? Imperfect competition and monetary market power," Globalization Institute Working Papers 01, Federal Reserve Bank of Dallas.
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    19. Taylor, Mark P. & Schmidt, Markus & Reitz, Stefan, 2007. "End-user order flow and exchange rate dynamics," Discussion Paper Series 1: Economic Studies 2007,05, Deutsche Bundesbank.

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    More about this item

    Keywords

    Exchange Rates; Foreign Currency; Microstructure;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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