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Third-Currency Effects in a Tri-Polar Model of Foreign Exchange

Author

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  • Martin Melecky

    (School of Economics, University of New South Wales)

Abstract

This paper investigates possible contribution of third-currency effects to exchange rate movements. It reopens the subject of currency substitution and examines whether the third-currency effects change when the third-currency is a complement as opposed to when it is a substitute for currencies appearing in a bilateral exchange rate quote. The analysis and tests are carried out within a simple macro-econometric model with one common permanent component driving the system of bilateral exchange rates for the US dollar, the Japanese yen and the euro.

Suggested Citation

  • Martin Melecky, 2005. "Third-Currency Effects in a Tri-Polar Model of Foreign Exchange," International Finance 0504011, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0504011
    Note: Type of Document - pdf; pages: 25
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    More about this item

    Keywords

    Exchange Rate Modeling; Currency Substitution; Third-currency Effects;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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