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Author/Editor:
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Thomas Dowling ; Nicoletta Batini
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Publication Date:
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January 01, 2011
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Electronic Access:
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Free Full text
(PDF file size is 2,317KB).
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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Summary:
Using an adaptation of the Uncovered Interest Parity (UIP) condition, this paper analyzes the drivers behind the large, symmetric exchange rate swings observed during the financial crisis of 2008-2010. Employing a Nelson-Siegel model, we estimate yield curves and decompose the exchange rate movements into changes we attribute to monetary policy and a residual. We find that the depreciation phase of the currencies in our sample was largely dominated by safe-haven effects rather than carry trade activity or other return considerations. For some countries, however, the appreciation that began at the end of 2008 seems largely to reflect downward movement in the cumulative revisions to nominal forward differentials, suggesting carry trade.
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Order a print copy
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Series:
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Working Paper No. 11/14
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Subject(s):
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Developed countries | Economic models | Emerging markets | Exchange rate adjustments | Exchange rates | Global Financial Crisis 2008-2009 | Interest rates
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Author's Keyword(s):
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uncovered interest parity | UIP | financial crisis | term structure | interest rates | exchange rates | |
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