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Real financial market exchange rates and capital flows

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  • Gelman, Maria
  • Jochem, Axel
  • Reitz, Stefan
  • Taylor, Mark P.

Abstract

Foreign exchange rates, asset prices and capital movements are expected to be closely related to each other as international capital markets become more and more integrated. This paper provides new empirical evidence from an index of exchange-rate adjusted cross-country asset price ratios, which may be interpreted as a real effective financial exchange rate. The integrated stock-flow approach reveals that a county's real effective financial exchange rate is co-integrated with international investors' net foreign holding of its assets. The associated error correction equations have useful interpretations against the backdrop of uncovered return parity and investor portfolio rebalancing behavior.

Suggested Citation

  • Gelman, Maria & Jochem, Axel & Reitz, Stefan & Taylor, Mark P., 2014. "Real financial market exchange rates and capital flows," Kiel Working Papers 1945, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:1945
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    Cited by:

    1. Jochem, Axel & Reitz, Stefan, 2013. "International comparison of stock market valuation: Evidence from a new index," Kiel Policy Brief 61, Kiel Institute for the World Economy (IfW).
    2. repec:eee:reveco:v:57:y:2018:i:c:p:15-25 is not listed on IDEAS
    3. Pilar Beneito & Carlos Chafer, 2017. "Current Account Imbalances and Cost Competitiveness: The Role of the Euro," Working Papers 1703, Department of Applied Economics II, Universidad de Valencia.
    4. repec:kap:iecepo:v:15:y:2018:i:2:d:10.1007_s10368-017-0405-3 is not listed on IDEAS
    5. Gelman, Maria & Jochem, Axel & Reitz, Stefan, 2016. "Transmission of global financial shocks to EMU member states: The role of monetary policy and national factors," Discussion Papers 23/2016, Deutsche Bundesbank.
    6. repec:eee:finsta:v:36:y:2018:i:c:p:346-360 is not listed on IDEAS

    More about this item

    Keywords

    Real Effective Exchange Rate; Capital Flows; Financial Markets;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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