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1 – 10 of 287This paper analyzes the information content of the forward exchange rates implied by the interest rate parity, using the Korea and U.S. interest rates and Won/dollar exchange rates…
Abstract
This paper analyzes the information content of the forward exchange rates implied by the interest rate parity, using the Korea and U.S. interest rates and Won/dollar exchange rates observed during the period of March 1991 to December 2002. First, we test the cointegration between implied forward exchange rates and future spot exchange rates to examine their longrun relationship, and find the existence of cointegration. Next, we examine the international Fisher effect and estimate an error correction model for their shortrun relationship. Our analysis supports the international Fisher effect for longer maturities. Our result also supports the error correction model that states that the future spot exchange rates will be adjusted reflecting the information contained in the past-period implied forward rates which is not fully reflected to current spot rates. Finally, we also find that the term structure of implied forward exchange rates is associated with the changes in future spot rates for longer maturities. Based on our findings, we conclude that the longrun relationship exists between the implied forward exchange rates and future spot exchange rates, and the shortrun deviation from the relationship tend to disappear as they return to the longrun relationship in the course of time.
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This paper identifies the “idiosyncratic basis”, the residual premia computed from stripping away the hypothetical cross-currency basis (CCB) from the cross-currency credit spread…
Abstract
This paper identifies the “idiosyncratic basis”, the residual premia computed from stripping away the hypothetical cross-currency basis (CCB) from the cross-currency credit spread (CCCS) of eligible senior corporate dollar-denominated bonds relative to their hypothetical euro-denominated comparator of identical seniority, duration, credit risk and issuer. The adherence of the idiosyncratic basis to the no-arbitrage condition is subsequently evaluated through the application of an indicative market-neutral credit strategy that is designed to harvest the apparent static arbitrage opportunities. The success of the strategy, which systematically captures the idiosyncratic basis as it adheres to the no-arbitrage conditions, is validated retrospectively to frame the basis as an additional class of alternative risk premia (ARP), which investors can seek to optimise exposure to in a long-only context.
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Idris Abdullahi Abdulqadir, Soo Y. Chua and Saidatulakmal Mohd
The purpose of this paper is to investigate the optimal inflation targets for an appropriate exchange rate policy in 15 major oil exporting countries in Sub-Saharan African (SSA).
Abstract
Purpose
The purpose of this paper is to investigate the optimal inflation targets for an appropriate exchange rate policy in 15 major oil exporting countries in Sub-Saharan African (SSA).
Design/methodology/approach
Dynamic heterogeneous panel threshold techniques are used via threshold-effect test and threshold regression. This procedure is achieved through a grid search and bootstrapping replications method to stimulate the asymptotic distribution of the likelihood ratio test of the null hypothesis on no-threshold as against the alternative hypothesis. The p-values validate the threshold estimates.
Findings
Findings revealed that the optimal inflation target has a turning point and its impact on the real exchange rate is up to a threshold level of 14.47 per cent. Furthermore, the inflation rate above the threshold level overwhelmingly revealed its effect on real exchange regimes.
Research limitations/implications
It would have been a good idea to investigate optimal inflation targets for all African countries but due to inadequate data the selection criteria was narrowed to oil-exporting countries in Sub-Saharan Africa.
Practical implications
Inflation targeting beyond the threshold level would have serious implications on the monetary policy.
Originality/value
To the best of the knowledge, this is the first study to look at optimal inflation targets for 15 major oil exporting countries in general and SSA countries in particular. The findings provide a critical analysis of an inflation regime for a typical oil-producing country that oil exports being their source of revenue.
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This paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment…
Abstract
Purpose
This paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment insurance (UI) program tends to expand during an economic downturn and contract during an expansion. UI may incentivize unemployment and may also facilitate better matching in the labor market. Statistical evidence of the presence of a co-movement will thus shed new light on their dynamics.
Design/methodology/approach
This research applies time-series econometric approach using monthly data from 1959:1 to 2020:3 to test threshold cointegration and estimate a threshold vector error-correction (TVEC) model. The estimates from the TVEC model investigating the nature of short-run dynamics.
Findings
The Enders and Siklos (2001) test find evidence of threshold cointegration between the two indicating the presence of long-run co-movement. The estimates from the TVEC model investigating the nature of short-run dynamics find evidence that the growth in aggregate UI spending and the growth in labor force participation rate adjust simultaneously to maintain the long-run co-movement above the threshold in the short run. The author also observes the same short-run dynamics for the growth in aggregate UI spending and the growth in the labor force participation rate for females.
Research limitations/implications
This model is bi-variate by construction and does not address causality.
Practical implications
The author argues that the UI program positively impacts the female labor market outcomes, for example, better matching. This finding may explain the upward trend in the labor force participation rate for females in the USA.
Social implications
The research findings may justify the transfer programs for minority and immigrants.
Originality/value
This is first research that analyzes the UI programs impact on the labor force participation using a macroeconometric approach. To the best of the author's knowledge, this is the first study in this genre.
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