The paper considers the problem of volatility co-movement, namely as to whether two financial returns have perfectly correlated common volatility process, in the framework of multivariate stochastic volatility models and proposes a test which checks the volatility co-movement. The proposed test...

This report discusses FX liquidity metrics and their drivers, reaching four conclusions. First, changes in FX markets have reduced the usefulness of some conventional FX liquidity metrics; several metrics need to be assessed together to give a better picture of market liquidity. Second, some...

We examine the reasons why the SNB gave up the lower floor of the 1.20 CHF/EUR exchange rate arrangement. Three types of shocks played a role: Exogenous shocks to the autonomous component of money demand, interest rate decreases of the ECB, as well as appreciation expectations. In order to...

Is it common for central banks to intervene in foreign exchange markets in order to influence exchange rates? And if so, is it effective? From a German perspective, these questions seem surprising, since the European Central Bank (ECB) does not intervene in foreign exchange markets-rather, it...

A large literature attributes failure of uncovered interest rate parity (UIP) to the existence of a timevarying risk premium. This paper presents a mechanism in a simple two-country two-good endowment economy with incomplete markets that generates sizeable deviations from UIP. In a...

This paper empirically compares the implications of two distinct models of FX intervention, within the context of Inflation Targeting Regimes. For this purpose, it applies the VAR methodology developed by Kim (2003) to the cases of Mexico and Brazil. Our results can be summarized in three...

We analyze the impact of Eurozone/Germany and U.S. macroeconomic news announcements and the communication of the monetary policy settings of the ECB and the Fed on the forex markets of new EU members. We employ an Event Study Methodology to analyze intra-day data from 2011-2015. Our...

To improve short-horizon exchange rate forecasts, we employ foreign exchange market risk factors as fundamentals, and Bayesian treed Gaussian process (BTGP) models to handle non-linear, time-varying relationships between these fundamentals and exchange rates. Forecasts from the BTGP model...

We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss franc against the euro in January 2015. In the runup to the SNB announcement, neither options on the euro/Swiss franc nor FX liquidity indicated a significant shift in market expectations....

Background: The purpose of this study is to examine volatility spillover effects between stock market and foreign exchange market in selected Asian countries; Pakistan, India, Sri Lanka, China, Hong Kong and Japan. This study considered daily data from 4th January, 1999 to 1st January, 2014....

Foreign exchange markets are the biggest financial markets on the globe, the dollar-euro market is the biggest among them with a daily turnover of $1.3 trillion. This market is the interface of the euro bloc and the dollar bloc which use mainly one of the major currencies, comprising 45-60% and...

Ever more extensive global financial linkages are changing in ways that have significant implications for policy. Asia-Pacific countries have experienced a particularly rapid growth in financial flows since the crisis. Against this background, the BIS's Representative Office for Asia and the...

We explore possible effects of a Tobin tax on exchange rate dynamics in a heterogeneous agent model. To assess the impact of the Tobin tax in this framework, we extend the model of De Grauwe and Grimaldi (2006) by including transaction costs and perform numerical simulations. Motivated by the...

Asset prices tend to undergo wide swings around long-run equilibrium values, which can have detrimental effects on the real economy. To get a better understanding of how the financial sector and the real economy interact, this paper models the long swings in the Swiss franc-US dollar foreign...

The Swiss National Bank’s January 2015 decision to abandon the Swiss franc’s peg to the euro led to short-term chaos in exchange markets and had a dampening effect on the Swiss economy. Some economists suggested Switzerland was poised to enter a sustained period of stagnation à la Japan....

The key objective of this study is to investigate the return and volatility spillover effects among stock market, credit default swap (CDS) market and foreign exchange market for three countries: Korea, the US and Japan. Using the trivariate VAR BEKK GARCH (1,1) model, the study finds that there...