TY - UNPB
T1 - Co-movements in Real Effective Exchange Rates
T2 - Evidence From the Dynamic Hierarchical Factor Model
AU - Nagayasu, Jun
N1 - Published as a paper within the Discussion Papers in Economics, No. 13-18 (2013)
PY - 2013/8/30
Y1 - 2013/8/30
N2 - We analyze and quantify co-movements in real effective exchange rates while considering the regional location of countries. More specifically, using the dynamic hierarchical factor model (Moench et al. (2011)), we decompose exchange rate movements into several latent components; worldwide and two regional factors as well as country-specific elements. Then, we provide evidence that the worldwide common factor is closely related to monetary policies in large advanced countries while regional common factors tend to be captured by those in the rest of the countries in a region. However, a substantial proportion of the variation in the real exchange rates is reported to be country-specific; even in Europe country-specific movements exceed worldwide and regional common factors.
AB - We analyze and quantify co-movements in real effective exchange rates while considering the regional location of countries. More specifically, using the dynamic hierarchical factor model (Moench et al. (2011)), we decompose exchange rate movements into several latent components; worldwide and two regional factors as well as country-specific elements. Then, we provide evidence that the worldwide common factor is closely related to monetary policies in large advanced countries while regional common factors tend to be captured by those in the rest of the countries in a region. However, a substantial proportion of the variation in the real exchange rates is reported to be country-specific; even in Europe country-specific movements exceed worldwide and regional common factors.
KW - real effective exchange rates
KW - dynamic hierarchical factor model
KW - variance decomposition
KW - bayesian model averaging
UR - https://www.strath.ac.uk/business/economics/research/discussionpapers/
M3 - Discussion paper
T3 - Strathclyde Discussion Papers in Economics
BT - Co-movements in Real Effective Exchange Rates
PB - University of Strathclyde
CY - Glasgow
ER -