Trend Fundamentals and Exchange Rate Dynamics

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14560%2F20%3A00114030" target="_blank" >RIV/00216224:14560/20:00114030 - isvavai.cz</a>
Result on the web
<a href="https://onlinelibrary.wiley.com/doi/full/10.1111/ecca.12334" target="_blank" >https://onlinelibrary.wiley.com/doi/full/10.1111/ecca.12334</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1111/ecca.12334" target="_blank" >10.1111/ecca.12334</a>

Result language
angličtina
Original language name
Trend Fundamentals and Exchange Rate Dynamics
Original language description
We estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US dollar. The empirical model is based on the assumption that two countries’ monetary policy strategies may be well described by Taylor rules with a time-varying inflation target, a time-varying natural rate of unemployment, and interest rate smoothing. Compared to the existing literature, our model simultaneously provides estimates of the latent components included in a typical Taylor rule specification and the model-based real exchange rate. Our estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered, outperforming a benchmark model that does not account for changes in trend inflation and trend unemployment. More precisely, the proposed approach improves on competing models in tracking the actual evolution of the real exchange rate in terms of simple correlations while it appreciably improves on simpler competitors in terms of matching the persistence of the real exchange rate.
Czech name
—
Czech description
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Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
—
OECD FORD branch
50200 - Economics and Business

Project
<a href="/en/project/GA17-14263S" target="_blank" >GA17-14263S: Dynamic forecast averaging of macroeconomic models</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2020
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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