IDEAS home Printed from https://ideas.repec.org/a/prg/jnlpol/v2019y2019i5id1263p476-489.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://polek.vse.cz/doi/10.18267/j.polek.1263.html
    Download Restriction: free of charge
    File URL: http://polek.vse.cz/doi/10.18267/j.polek.1263.pdf
    Download Restriction: free of charge
    File URL: https://libkey.io/10.18267/j.polek.1263?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jaromír Kukal & Tran Van Quang, 2014. "Neparametrický heuristický přístup k odhadu modelu GARCH-M a jeho výhody [Estimating a GARCH-M Model by a Non-Parametric Heuristic Method and Its Advantages]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(1), pages 100-116.
    2. Longworth, David, 1981. "Testing the Efficiency of the Canadian-U.S. Exchange Market under the Assumption of no Risk Premium," Journal of Finance, American Finance Association, vol. 36(1), pages 43-49, March.
    3. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    4. Anonymous, 1961. "International Monetary Fund," International Organization, Cambridge University Press, vol. 15(4), pages 710-712, October.
    5. Mr. Guy M Meredith & Yue Ma, 2002. "The Forward Premium Puzzle Revisited," IMF Working Papers 2002/028, International Monetary Fund.
    6. Vladyslav Sushko & Claudio Borio & Robert Neil McCauley & Patrick McGuire, 2016. "The failure of covered interest parity: FX hedging demand and costly balance sheets," BIS Working Papers 590, Bank for International Settlements.
    7. Anonymous, 1961. "International Monetary Fund," International Organization, Cambridge University Press, vol. 15(1), pages 194-195, January.
    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.
    9. Loring, Grace & Lucey, Brian, 2013. "An analysis of forward exchange rate biasedness across developed and developing country currencies: Do observed patterns persist out of sample?," Emerging Markets Review, Elsevier, vol. 17(C), pages 14-28.
    10. Anonymous, 1961. "International Monetary Fund," International Organization, Cambridge University Press, vol. 15(3), pages 520-522, July.
    11. Anonymous, 1961. "International Monetary Fund," International Organization, Cambridge University Press, vol. 15(2), pages 299-305, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Waliullah & Mehmood Khan Kakar & Rehmatullah Kakar & Wakeel Khan, 2010. "The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 1-26, Jan-Jun.
    2. Alicia Garcia-Herrero, 2014. "How Close is Asia to an Optimal Currency Area in Terms of Business Cycle Co-Movement?," IMES Discussion Paper Series 14-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    3. D. K. Srivastava, 2006. "Equalizing Health and Education : Approach of the Twelfth Finance Commission," Finance Working Papers 22517, East Asian Bureau of Economic Research.
    4. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    5. Sara L. McGaughey & Pascalis Raimondos & Lisbeth La Cour, 2018. "What is a Foreign Firm? Implications for Productivity Spillovers," CESifo Working Paper Series 7109, CESifo.
    6. Katsiaryna Svirydzenka & Martin Petri, 2017. "Mauritius: The Drivers of Growth – Can the Past Be Extended?," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(8), pages 54-83, October.
    7. John Kibara Manyeki & Balázs Kotosz, 2017. "Empirical Analysis of the Wagner Hypothesis of Government Expenditure Growth in Kenya: ARDL Modelling Approach," Theory Methodology Practice (TMP), Faculty of Economics, University of Miskolc, vol. 13(02), pages 45-57.
    8. Calomiris, Charles W. & Flandreau, Marc & Laeven, Luc, 2016. "Political foundations of the lender of last resort: A global historical narrative," Journal of Financial Intermediation, Elsevier, vol. 28(C), pages 48-65.
    9. Gusztáv Báger & Bianka Parragh, 2020. "The Coronavirus Crisis, Sustainable Development and the Incentive State Model," Public Finance Quarterly, State Audit Office of Hungary, vol. 65(6), pages 86-115.
    10. Leon Javoer, 1999. "Determinants of the Exchange Rate Regime: A Time Series Analysis for Chile," International Economic Journal, Taylor & Francis Journals, vol. 13(2), pages 89-102.
    11. Gouel, Christophe & Legrand, Nicolas, 2016. "Bayesian Estimation of the Storage Model using Information on Quantities," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235599, Agricultural and Applied Economics Association.
    12. Patricia S. Pollard, 1993. "Central bank independence and economic performance," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 21-36.
    13. Mirella Damiani & Fabrizio Pompei & Andrea Ricci, 2012. "Labour Shares and Employment Protection in European Economies," Quaderni del Dipartimento di Economia, Finanza e Statistica 111/2012, Università di Perugia, Dipartimento Economia.
    14. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Other publications TiSEM 0401b17a-e2c7-4179-ace9-a, Tilburg University, School of Economics and Management.
    15. Carlos Seiglie, 2016. "Openness of the economy, terms of trade, and arms," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 748-759, January.
    16. Ronald MacDonald, 2000. "The role of the exchange rate in economic growth: a euro-zone perspective," Working Paper Research 09, National Bank of Belgium.
    17. Danilo Liberati, 2018. "An estimated DSGE model with search and matching frictions in the credit market," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 11(6), pages 567-617.
    18. Maurice Obstfeld, 1993. "The Adjustment Mechanism," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 201-268, National Bureau of Economic Research, Inc.
    19. Dominik A. Skopiec, 2015. "Rola specjalnych praw ciągnienia we współczesnym międzynarodowym systemie walutowym," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5, pages 89-118.
    20. Mwangi Kimenyi & William Shughart, 1989. "Political successions and the growth of government," Public Choice, Springer, vol. 62(2), pages 173-179, August.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:prg:jnlpol:v:2019:y:2019:i:5:id:1263:p:476-489. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Stanislav Vojir (email available below). General contact details of provider: https://edirc.repec.org/data/uevsecz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.