Exchange rates

Gino Cenedese, Richard Payne, Lucio Sarno, Giorgio Valente, 17 July 2015

Various theories suggest that exchange rate fluctuations and stock returns are linked. In this column, the authors find little evidence of a relationship between the two. Thus, a simple trading strategy that invests in countries with the highest expected equity returns and shorts those with the lowest generates substantial risk-adjusted returns.

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, 29 June 2015

Japanese firms have been struggling with the yen’s volatility ever since the peg was dropped in 1973. This column, based on a recent survey of Japanese firms, argues that many firms have managed their exchange rate exposure by using operational and financial hedging strategies. It also finds that firms employing currency hedge and invoicing exports in yen are judged by the market to have reduced currency exposures. 

Sascha Bützer, Maurizio Michael Habib, Livio Stracca, 07 March 2015

The large dip in oil prices reverberated across asset markets, contributing to the depreciation of the Russian rouble. This column argues that the recent fall of the rouble may be more an exception than the norm. Oil shocks have only a limited impact on global exchange rate configurations, since oil exporters tend to lean against exchange rate pressures by running down or accumulating foreign exchange reserves.

Konstantins Benkovskis, Julia Woerz, 24 February 2015

There is no single replicable and comprehensive indicator of competitiveness that can be applied to various entities. In this column, the authors propose a novel decomposition of market share growth that captures non-price factors, such as quality or tastes. The findings imply that relying solely on price factors to determine a country’s competiveness might be misleading. For instance, central for boosting China’s presence in the global market were improvements in non-price factors. The role played by the exchange rate has been less important. 

Lars P Feld, Christoph M Schmidt, Isabel Schnabel, Benjamin Weigert, Volker Wieland, 20 February 2015

Claims that ‘austerity has failed’ are popular, especially in the Anglo-Saxon world. This column argues that this narrative is factually wrong and ignores the reasons underlying the Greek crisis. The worst move for Greece would be to return to its old ways. Greece needs to realise that things could actually become much worse than they are now, particularly if membership in the Eurozone cannot be assured. Instead of looking back, Greece needs to continue building a functioning state and a functioning market economy.

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