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Which are the world's wobbliest currencies? Reference rates and their variation

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  • Zhu, Jennifer
  • Bowden, Roger

Abstract

Measuring country exchange rates relative to a common reference basket results in a set of no-arbitrage prices, unlike trade-weighted indexes, the usual method of comparing country exchange rate histories. The single degree of freedom involved can be resolved by drawing on required economic interpretations or uses. We use currency reference rates to examine the historical variability of different currencies over designated cyclical horizons. The temporal decompositions used are those provided by wavelet analysis, which is light on maintained assumptions about data generating processes. some countries, notably Japan and New Zealand do exhibit a powerful but irregular medium term cycle, while others are much more stable. Implications are examined for investment, hedging, monetary policy and common currency studies.

Suggested Citation

  • Zhu, Jennifer & Bowden, Roger, 2006. "Which are the world's wobbliest currencies? Reference rates and their variation," Working Paper Series 33483, Victoria University of Wellington, School of Economics and Finance.
    • Handle: RePEc:vuw:vuwecf:33483
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    File URL: https://ir.wgtn.ac.nz/handle/123456789/33483
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    References listed on IDEAS

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    1. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
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    3. Bowden, Roger J, 1977. "Spectral Utility Functions and the Design of a Stationary System," Econometrica, Econometric Society, vol. 45(4), pages 1007-1012, May.
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