INTEGRATION OF INTERNATIONAL FOREIGN EXCHANGE MARKETS; FURTHER EVIDENCE FROM THE GERMAN DOMINANCE HYPOTHESIS

  • Person, UPM (PI)

Project: Externally funded project

Project Details

Description

In this project we estimate the risk premia for eleven foreign forward exchange rates and examine whether the European Monetary System (EMS) has definitely contributed to integrated foreign forward risk premium. The establishment of the EMS aimed at achieving monetary stability in membership countries through lower inflation rates and limited exchange rate volatility. Kalman filtering framework allows us to estimate the foreign forward exchange rate risk premium and test the so-called German Dominance Hypothesis. We test the hypothesis in terms of Japanese yen, which lie outside the EMS. We find that the comovements of risk premia among EMS currencies differ across time periods and there display a tendency to convergence to German mark's risk premium.
StatusFinished
Effective start/end date01.01.199931.12.2000