Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach
This paper represents a new approach in the exchange rate determination by using microstructural and macroeconomic variables. We test a combination of fundamentals and microstructure variables in cointegrated relationship of the USD/JPY and USD/GBP currencies' pairs. The ‘twofold' model i...
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| Format: | Article |
| Language: | English |
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EconJournals
2021-05-01
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| Series: | International Journal of Economics and Financial Issues |
| Online Access: | https://econjournals.com/index.php/ijefi/article/view/11305 |
| _version_ | 1797918101737570304 |
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| author | Ali Trabelsi Karoui Aida Kammoun |
| author_facet | Ali Trabelsi Karoui Aida Kammoun |
| author_sort | Ali Trabelsi Karoui |
| collection | DOAJ |
| description |
This paper represents a new approach in the exchange rate determination by using microstructural and macroeconomic variables. We test a combination of fundamentals and microstructure variables in cointegrated relationship of the USD/JPY and USD/GBP currencies' pairs. The ‘twofold' model includes interest rate, money supply and net foreign assets as fundamentals, and spread and high-low spread as a microstructure variable. Then we compare the different models of macroeconomic and twofold model with the random walk using an error-correction method. We find that the twofold model outperforms the random structural model in out-of-sample and in-sample forecast test for both exchange rates. Twofold model outperforms in out-of-sample forecast the random walk test for the USD/JPY.
Keywords: exchange rate, spreads, interest rate, money supply, net foreign assets, twofold model, cointegration
JEL Classifications: G15, G17, G18, F31, F62
DOI: https://doi.org/10.32479/ijefi.11305
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| first_indexed | 2024-04-10T13:23:57Z |
| format | Article |
| id | doaj.art-cb8e76d1bd2f44bea51f782c74f829f4 |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T13:23:57Z |
| publishDate | 2021-05-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-cb8e76d1bd2f44bea51f782c74f829f42023-02-15T16:11:55ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382021-05-011135213Exchange Rate Determination: Mixed Microstructural and Macroeconomic ApproachAli Trabelsi Karoui0Aida Kammoun1University of SfaxUniversity of Sfax This paper represents a new approach in the exchange rate determination by using microstructural and macroeconomic variables. We test a combination of fundamentals and microstructure variables in cointegrated relationship of the USD/JPY and USD/GBP currencies' pairs. The ‘twofold' model includes interest rate, money supply and net foreign assets as fundamentals, and spread and high-low spread as a microstructure variable. Then we compare the different models of macroeconomic and twofold model with the random walk using an error-correction method. We find that the twofold model outperforms the random structural model in out-of-sample and in-sample forecast test for both exchange rates. Twofold model outperforms in out-of-sample forecast the random walk test for the USD/JPY. Keywords: exchange rate, spreads, interest rate, money supply, net foreign assets, twofold model, cointegration JEL Classifications: G15, G17, G18, F31, F62 DOI: https://doi.org/10.32479/ijefi.11305 https://econjournals.com/index.php/ijefi/article/view/11305 |
| spellingShingle | Ali Trabelsi Karoui Aida Kammoun Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach International Journal of Economics and Financial Issues |
| title | Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach |
| title_full | Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach |
| title_fullStr | Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach |
| title_full_unstemmed | Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach |
| title_short | Exchange Rate Determination: Mixed Microstructural and Macroeconomic Approach |
| title_sort | exchange rate determination mixed microstructural and macroeconomic approach |
| url | https://econjournals.com/index.php/ijefi/article/view/11305 |
| work_keys_str_mv | AT alitrabelsikaroui exchangeratedeterminationmixedmicrostructuralandmacroeconomicapproach AT aidakammoun exchangeratedeterminationmixedmicrostructuralandmacroeconomicapproach |