تجزیه نوسانات نرخ ارز در اطراف حاشیه اقیانوس آرام

Volatility in exchange rates is decomposed into components associated with domestic and international concerns for six Pacific Rim currencies. A latent factor model is used to model bilateral exchange rate changes as the weighted sum of three factors; two factors are uniquely associated with each of the currencies involved in the exchange rates and the other represents world shocks common to all exchange rates. The results show that international factors are more important in determining exchange rate volatility for the smaller nations of Australia, Singapore, and New Zealand, than for the larger nations of Japan and Canada.

This paper decomposes bilateral exchange rate volatility for a selection of Pacific Rim currencies into components associated with domestic and international concerns. Governments and monetary authorities often express concern in the face of increases in exchange rate volatility and a desire to reduce it, using means such as foreign exchange intervention or Tobin taxes for example. The effective reduction of volatility relies on understanding its source; if exchange rate volatility for a particular currency is primarily sourced internationally there may be very little national authorities can do to alter the situation, while retaining a flexible exchange rate regime. However, if the volatility is primarily domestic in origin, then the particular source of the disturbances may bear closer examination. There is now a well-developed literature on exchange rate volatility, and an accepted measure of unconditional volatility as either the variance or standard deviation of movements in exchange rate changes. However, there has as yet been no consensus on the sources of exchange rate volatility, either by individual country or across panels. Volatility in bilateral exchange rates between six currencies is examined in this paper. The focus here is on the different experiences of Pacific Rim countries with flexible exchange rate regimes. The currencies examined are the U.S. dollar (USD), Canadian dollar (CAD), Japanese yen (JPY), Singaporean dollar (SGD), Australian dollar (AUD) and New Zealand dollar (NZD). A latent factor model of exchange rate movements in the tradition of Mahieu and Schotman (1994) and Diebold and Nerlove (1989) is used to decompose exchange rate volatility into three components, two due to each of the currencies involved in the exchange rate, and a common world factor which effects all exchange rates. The focus on international and domestic factors is similar to that taken by Engle, Ito, and Lin (1990). Estimation is accomplished through Generalized Method of Moments (GMM) using a panel of exchange rate data. The results demonstrate that the reason for the lack of consensus in the literature as to the causes of volatility lies with the differing responses of individual exchange rates to common and idiosyncratic information. Hence, studies concerned with explaining exchange rate movements with panels of observed information (such as Rose, 1994) are unlikely to be successful. The results derived in this paper are in accordance with Enders and Hurn (1994) who concluded that international events are highly influential in explaining exchange rate movements for smaller Pacific Rim nations. For instance, volatility in the Canadian dollar exchange rate is found to be largely due to Canadian factors, while volatility in the NZ dollar is primarily sourced from overseas. The paper proceeds as follows. Section 2 outlines the latent factor model and Section 3 presents the estimation technique. The data is outlined in Section 4 and results follow in Section 5. Section 6 concludes

A latent factor model was used to model bilateral exchange rate changes as the weighted sum of three factors, where two of the factors are uniquely associated with each of the currencies involved in the exchange rates and the other represents world shocks common to all exchange rates. A decomposition of the unconditional variance of this model gives the contribution of each of the domestic and international factors to total exchange rate volatility in that exchange rate. This method was applied to a panel of Pacific Rim currencies, comprising the U.S., Canadian, Singaporean, Australian and New Zealand dollars and the Japanese yen using weekly exchange rate data from 1990 to 1998. The results show substantial differences between the exchange rate volatility decompositions for the larger Pacific Rim countries of the U.S., Japan and Canada, from the smaller countries of Australia, Singapore and New Zealand. For the smaller countries the combined overseas factors dominate exchange rate volatility assessed against the larger countries. Volatility decompositions for exchange rates between the smaller countries show a more diverse pattern. Canadian dollar denominated exchange rate volatility is dominated by the Canadian factor, as is yen denominated volatility dominated by the yen factor in general. For the U.S. dollar denominated exchange rates, which make up the majority of world foreign exchange turnover (BIS, 1999), the combination of world and U.S. factors dominate the volatility decomposition against the smaller Pacific Rim nations, but the smaller country factors are nevertheless a substantial influence in each case. These results indicate the difficulties that arise in attempting to apply panel data techniques to identify common macroeconomic fundamentals in a diverse set of exchange rates. The extent to which individual exchange rates respond to domestic and international factors varies widely in any given group of exchange rates. Individual country differences are demonstrably important in understanding bilateral exchange rate volatility. The result that different countries’ exchange rate volatilities are differently influenced by international and domestic factors implies that there is no clear blueprint for understanding or reducing exchange rate volatility across the board. Large countries such as Japan and Canada may be able to use appropriately aimed domestic policies to reduce volatility given the substantial domestic factor contributions to volatility for those countries. However, for some countries the source of exchange rate volatility is primarily international and hence largely outside their policy control. This is the experience of Australia, Singapore and New Zealand in the 1990s.1, 2, 3 and 4; Hamilton1994>