“Exchange rate models for a new era: Major and emerging market currencies”

That’s the title of a forthcoming special section in the Journal of International Money and Finance. Here’s the introductory article to the special issue [link].

Disruptions to financial markets, elevated risk levels, and unconventional monetary policies pursued by central banks have altered the landscape of international finance. The near zero and negative interest rates in several key advanced economies, for instance, present a new environment for pricing financial assets and shock transmission. The ultra-accommodative policy stance has affected exchange rates via, for instance, its effects on expectations, capital flows and global liquidity. As a result, new challenges in modelling equilibrium exchange rates, assessing exchange rate misalignment, and evaluating their roles in re-balancing external imbalances, and shock transmission have arisen. Against this backdrop, a conference was convened to provide a platform for discussing recent advances in modelling exchange rates, from perspectives of both major and emerging market currencies. This special issue of the Journal of International Money and Finance consists of eight papers presented at a conference organized by Global Research Unit at Department of Economics and Finance, City University of Hong Kong, Bank for International Settlements, Asian Office, and Centre for Economic Policy Research, with advice from Nelson Mark, and held at City University of Hong Kong, May 18–19, 2017. The topics covered advances in empirical exchange rate modeling, the effect of news, risk and uncertainty on currency values, order flow and exchange rates, monetary policy and interest rate parity, and the behavior of the Renminbi duringthe post-crisis. We describe below the main take-aways from these papers. …

The entire article is here (ungated for 50 days). special issue [link]. Published online: Adler, Lama & Medina, Berg & MarkCao, Huang, Liu & MacDonald, Cheung, Chinn, Garcia Pascual & Zhang (ungated for 50 days), Cheung, Fatum & Yamamoto, Engel, Lee, Liu, Liu & Wu, Krohn & Moore, and McCauley & Shu.

The conference versions of the papers presented at the Hong Kong conference are available in this post.

Other JIMF special issues are listed here.


10 thoughts on ““Exchange rate models for a new era: Major and emerging market currencies”

  1. Moses Herzog

    I forgot to say Thank you Menzie for sharing the papers Menzie, you are always very kind about that. I even found 6 downloads directly off the journal site, so that’s pretty cool as well. The navigation for non-subsribers is slightly a _____ but I clicked on the tiny icon of the journal in the upper right, and then clicked on the Mendelay stuff, and even though I don’t use Mendelay, the Mendelay articles worked for the 6 ones that were open access. That last part is more for other readers benefit. Obviously I think all the HK ones are quite easy to access. I may have even already downloaded the HK ones on the original blog post. Anyways it’s kind of you to put it again for those that didn’t see it before.

  2. Barkley Rosser


    Have read your intro paper summarizing the special issue. It seems in your own paper you confirm that PPP iworks best for long run forecasting, and that while some models (structural) can beat the random walk sometimes, it remains hard to do so.

    Obviously you are summarizing, but it seemed that your paper is the only one that attempts to compare forecasts with the infamous random alk (thank you again, Meese and Rogoff). Is that righ? Although it seems that several of the later papers are more concerned with narrower topics such as behavior of the yen and the rmb. Interesting that the apparent de facto rmb zone may have disspated with PRC ending its basket policy.

    Is it really true that the first paper finds Taylor fundamentals predicting well. The summary of Ken West’s paper (with coauthors) seemed to say that was what the first paper said, which Ken’s paper did not find (and you went well beyond those too). Did you accidentally leave out the point about Taylor fundamentals when describing the first paper.

    There was a paper about unconventional policies, but they were not described in the summary, although it seems they substitute for changine forex rates, if I read that correctly.

    A bottom line is have things really changed since 2008 or so? That is the suggestion, but it is not obvious that they have much aside from possibly less use of forex policy due to “unconventional” macro policies. Is this right? After all, your finding of PPP being best long run predictor I thin was the widely accepted view back before 2008, right?

    1. Menzie Chinn Post author

      Barkley Rosser: There are many, many, many papers doing horse-races vis a vis random walk — just no others in the special section (it would be boring to have multiple in a special section). The references include Cheung, Chinn, Fujii and Garcia-Pascual (2005), Chinn and Meese (1995), various papers by Mark P. Taylor, by Ronald MacDonald, by Lucio Sarno, by Valerie Cerra and Sweta Saxena. For a recent survey, see “PPP and Real Exchange Rates”.

      The standard real interest rate differential-exchange rate (Dornbusch, Frankel, and Meese-Rogoff (1988)) which was the single clear stylized fact pre-2008 has been of much less use post-ZLB. Moreover, quantitative easing has apparently had big impacts while difficult to model in standard macro models at monthly frquency. So…we organized the conference.

      1. Barkley Rosser

        Thanks, Menzie. I guess the unconventional macro policies mostly boil down to quantitative easing, as well as other things done in the ZLB. I think I saw mention in your summary of at least one paper of negative interest rate policies, which are still going on out there, and I would agree that these remain poorly dealt with in the theoretical models, even if maybe they are less of a problem in the empirical ones. But, as we know, those have their serious limits.

        I also note that while there were a couple of DSGE based models, you seem to prefer structural and others to them. They did not seem to provide much insight anyway, although you should be commended for being open-minded and all that.

    2. Moses Herzog

      “but it seemed that your paper is the only one that attempts to compare forecasts with the infamous random alk” [sic]

      Without being petty and pointing out spelling errors, one who purports to read a relatively wide scope of research papers would not ask such a question. You know, I’m honestly torn on this one whether to pat you on the head for tampering your monster ego down enough to ask a couple questions, and you asking what could be argued as a pretty dumb question as “….. is the only one….. is that righ?” [sic]

      I want to add here, as a sort of addendum, normally I am strongly against criticizing the asking of a question, as it’s not conducive to learning, however, some people are SO pretentious that……..

      1. Barkley Rosser

        Yes, Moses, you are being petty, and no, you are not excused.

        I confess to being careless in internet posts so leaving spelling errors, although I doubt that anybody reading my entry failed to understand what I wrote because of my carelessness. Both in my own publications and those I edit I am not so careless, indeed, I have long been accused of being anally picky about such issues far beyond mere spelling matters. Probably I should waste more time in correcting spelling errors in internet posts.

        As it is, Moses, only you and I are the only people to have posted comments on this serious intellectual thread. Yours failed even remotely to address any of the serious intellectual issues Menzie presented here. My comments did. There are others who follow this bllog who know this stuff, but they have chosen to remain silent; I do not know why.

        In any case, you added zero to this discussion of any real intellectual content, and when I did (see Menzie’s replies to me, none to you), you decided to jump in to criticize my spelling. You are seriously ill, Moses. Deal with it.

  3. Moses Herzog

    Somewhere up in the heavens, Ted Sorensen is looking down going “Hmmmm, that’s one I never thought of trying”

    While I’m on the topic of insanity, I might as well throw this one in for a two-fer:

    Passing out condoms to low-income groups and educating women on their choices is now worse than hanging human beings from a tree because their skin is brown. “FOX News, fair and balanced”

  4. Moses Herzog

    Related to rates:

    This is a great point, because if the federal reserve lowers rates, what they are really saying is “We’re willing to accommodate bad White House trade policy, even if that means empty bullet chambers when risk assets demolish the US economy”. And Jerome Powell can use any rhetoric he likes, that’s what the reality amounts to.

    Related to trump’s decision on Mexican tariffs. If I’m going to be wrong, I might as well be consistently wrong. Uncle Moses predicts the Mexican tariffs will be delayed

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