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Determinanty forwardového kurzu a role rizikových prémií (příklad měnových párů czk/eur a czk/usd)
[Determinants of Forward Exchange Rate and the Role of Risk Premiums (Case of CZK/EUR and CZK/USD Parities)]

Author

Listed:
  • Josef Arlt
  • Martin Mandel

Abstract

The aim of the article is to examine the relations between forward exchange rates (maturities of 3 and 6 months), spot exchange rates, interest rate differentials, expected spot exchange rates and risk premiums on the CZK/EUR and CZK/USD parities. A model of FX speculators and arbitrageurs is devised and subsequently empirically verified in order to provide an explanation for the dynamics of forward exchange rates. The estimations of parameters of explanatory variables, which enter the covered interest rate parity, are confirmed to be statistically significant for the time period preceding the application of the exchange rate commitment by the Czech National Bank. Though the estimated parameters of future spot rates are statistically significant, their low values suggest that their impact on the quotation of forward exchange rates is rather marginal. The statistically significant estimations of constants with negative signs are interpreted as risk premiums reflecting the higher credit risk for financial investments denominated in CZK. The relations within the time series of the CZK/EUR parity were found to be distorted during the period of exchange rate commitment on the parity level of 27 CZK/EUR and during foreign exchange interventions (i.e., the estimated parameters of interest rate differentials were not statistically significant).

Suggested Citation

  • Josef Arlt & Martin Mandel, 2019. "Determinanty forwardového kurzu a role rizikových prémií (příklad měnových párů czk/eur a czk/usd) [Determinants of Forward Exchange Rate and the Role of Risk Premiums (Case of CZK/EUR and CZK/USD ," Politická ekonomie, Prague University of Economics and Business, vol. 2019(5), pages 476-489.
    • Handle: RePEc:prg:jnlpol:v:2019:y:2019:i:5:id:1263:p:476-489
    DOI: 10.18267/j.polek.1263
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    References listed on IDEAS

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    5. Mr. Guy M Meredith & Yue Ma, 2002. "The Forward Premium Puzzle Revisited," IMF Working Papers 2002/028, International Monetary Fund.
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    8. Josef Arlt & Martin Mandel, 2017. "An Empirical Analysis of Relationships between the Forward Exchange Rates and Present and Future Spot Exchange Rates Example of CZK/USD and CZK/EUR," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(3), pages 199-220, June.
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    More about this item

    Keywords

    forward and spot exchange rates; unbiasedness hypothesis; interest rate differentials; risk premium; econometric model;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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