A portfolio balance approach to the Canadian–U.S. exchange rate

This paper investigates whether the portfolio-balance approach or the flow-oriented theory better explains the connection between stocks and exchange rate in various time-horizons in the four East Asian countries — Indonesia, Thailand, South Korea and Japan. For the analysis, we use different approaches of the wavelet methodology — wavelet correlation, wavelet coherence and wavelet cross-correlation. Wavelet correlations suggest that negative correlation is dominant across the wavelet scales in the emerging East Asian markets, which indicates that the portfolio-balance approach, that is, capital mobility stands behind this nexus. For the Japanese case, we find positive wavelet correlation across the scales, which suggests that the flow-oriented model or current account explains the interlink. Results of wavelet coherence are in line with the wavelet correlation results, and these results provide an additional evidence that investors’ panic during World financial crisis was the main culprit behind the massive financial fund reallocation in the all emerging Asian markets.

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Exchange Rate Determination: The Portfolio-Balance Approach

10.47260/jafb/1112 ◽

2020 ◽

pp. 19-40

Author(s):

Ioannis N. Kallianiotis

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Interest Rate ◽

Interest Rates ◽

Jel Classification ◽

Exchange Rate Determination ◽

Portfolio Balance ◽

Balance Approach ◽

The Exchange Rate ◽

Foreign Bonds

The portfolio-balance approach to exchange rate determination is part of the Asset Market Models and is largely attributed to economists after 1973 when the exchange rate became flexible (market determined). This article first introduces the setting of the model embedded in the portfolio balance approach that encompasses two assets (money and bonds), which deviates a little from the models and approaches used for the monetary approach to the balance of payment, the overshooting model, and from the associated market equilibria. The effects of monetary policy, of current account, and of wealth under the portfolio-balance approach are examined, here, theoretically and empirically. The current econometric results show that the exchange rate is determined by the foreign bonds, the domestic interest rate, and the foreign interest rate. JEL classification numbers: F31, F47, E52, E41, C52, E21, E43. Keywords: Foreign Exchange, Forecasting and Simulation, Monetary Policy, Demand for Money, Model Evaluation and Testing, Consumption and Saving, Interest Rates.

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Portfolio Balance Approach to Exchange Rate Determination in Singapore

East Asian Economic Issues ◽

10.1142/9789812819376_0012 ◽

1997 ◽

pp. 155-169

Author(s):

Tee Sing Foo ◽

Shahidur Rahman

Keyword(s):

Exchange Rate ◽

Exchange Rate Determination ◽

Portfolio Balance ◽

Balance Approach

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APLIKASI PENDEKATAN KESEIMBANGAN PORTOFOLIO TERHADAP NILAI TUKAR RUPIAH/DOLLAR AMERIKA

Ecosains: Jurnal Ilmiah Ekonomi dan Pembangunan ◽

10.24036/ecosains.346257.00 ◽

2012 ◽

Vol 1 (1) ◽

pp. 1

Author(s):

Nurbetty Herlina Sitorus

Keyword(s):

Exchange Rate ◽

Balance Model ◽

Rate System ◽

Net Foreign Assets ◽

Portfolio Balance ◽

Balance Approach ◽

Floating Exchange Rate ◽

Exchange Rate System ◽

The Exchange Rate ◽

Foreign Assets

Since the adoption of freely floating exchange rate system, the rupiah against the U.S. dollar continues to fluctuate. This has stimulated research on the instability of the rupiah and the factors that influence it. This study aims to analyze the variables that affect the exchange rate using the portfolio balance approach. The portfolio balance approach is an extension of the monetary theory by incorporating a combination of assets other than domestic currency. The results of the portfolio balance approach shows some variables that affect the exchange rate are Indonesia’s money supply (broad money), Indonesia’s net foreign assets and United States’ net foreign assets. It was also found that the speed of adjustment of the portfolio balance approach is 60,56. From this finding, it can shows that the portfolio balance model can be a good reference for explaining the movements of Indonesian Rupiah – US dollar exchange rate.

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