Page 173 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Unit 14 : Exchange Rate : Meaning and Components

Notes
Italy 0.69 0.07 0.74 1.00
Japan 0.51 0.07 0.55 0.46 1.00
Netherlands 0.94 0.20 0.85 0.71 0.51 1.00
Switzerland 0.80 0.14 0.76 0.61 0.55 0.80 1.00
United 0.55 0.16 0.51 0.51 0.47 0.56 0.50 1.00
Kingdom
West Germany 0.93 0.18 0.84 0.69 0.56 0.96 0.85 0.53 1.00
F – S
t t
Belgium 1.00
Canada 0.55 1.00
France 0.57 0.43 1.00
Italy 0.59 0.43 0.51 1.00
Japan 0.31 0.12 0.36 0.32 1.00
Netherlands 0.54 0.40 0.31 0.49 0.49 1.00
Switzerland 0.38 0.25 0.51 0.43 0.77 0.59 1.00
United 0.45 0.36 0.31 0.47 0.65 0.74 0.63 1.00
Kingdom
West Germany 0.49 0.50 0.52 0.49 0.73 0.69 0.88 0.72 1.00

a S – S is the four-week change in the spot exchange rate : F – S is the thirty-day forward rate
t + 1 t t t + 1
minus the spot rate observed four weeks later; F – S is the forward rate minus the current spot rate.
t t
Table 4: SUR regressions : 8/31/73–12/10/82, N = 122. a
)
)
ˆ
ˆ
F −
F −
F – S = ˆ α + β 1 ( t S + ε 1,t + , S – S = ˆ α + β 2 ( t S ) t + ε 2, t + .
1
) t
1
1
2
t t + 1 t + 1 t
Part A : Unconstrained
=
ˆ
Country ˆ α 2 (= −α 1 ) β ˆ 2 ( 1 − β ˆ 1 ) s ( ) ˆ α s () β ˆ
Belgium – 0.36 – 0.72 0.28 0.24
Canada – 0.26 – 1.04 0.11 0.59
France – 0.48 – 0.21 0.28 0.30
Italy – 1.08 – 0.44 0.32 0.24
Japan 0.12 – 0.28 0.28 0.35
Netherlands 0.10 – 0.78 0.27 0.25
Switzerland 0.81 – 1.15 0.42 0.50
United Kingdom – 0.52 – 0.69 0.26 0.51
West Germany 0.23 – 0.89 0.29 0.32
F tests 1. All β (or β ) equal F = 0.73 P level = 0.66
2
1
2. All α (or α ) equal F = 5.14 P level = 0.0001
2
1
3. All β = 0.0 (or β = 1.0) F = 2.81 P level = 0.003
2
1

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