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The Share of Systematic Variation in Bilateral Exchange Rates

  • Adrien Verdelhan

    (MIT Sloan)

Changes in exchange rates are not random. Two economically motivated factors account for 20% to 90% of the daily, monthly, quarterly, and annual exchange rate movements in developed countries and in emerging and developing countries with floating exchange rates. The different shares of systematic variation across currencies are related to financial and macroeconomic measures of world integration. Across countries, the more integrated the equity and bond markets, the higher the share of systematic currency variation. These results have direct implications for asset managers, motivate further work on exchange rates, and offer new insights into international economics and finance models.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 763.

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Date of creation: 2012
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Handle: RePEc:red:sed012:763
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