Exchange Rate Misalignments in Frequency Domain

International Review of Economics and Finance, Vol 24, No. 1, 2012

Posted: 13 Apr 2014

See all articles by Axel Grossmann

Axel Grossmann

Radford University

Alexei G. Orlov

Securities and Exchange Commission

Date Written: 2012

Abstract

This research uses spectral methodology to study how the volatility of spot exchange rate misalignments changed as a result of (1) signing of the Plaza Accord and (2) introduction of the Euro. We study the deviations of Canadian Dollar/US Dollar, Japanese Yen/US Dollar and US Dollar/British Pound spot exchange rates from CPI- and TPI-based equilibrium exchange rates. The spectral density results indicate that the Plaza Accord and the introduction of the Euro helped reduce the volatility of exchange rate misalignments and excess returns for the Yen and the Pound along virtually all frequency components. On the other hand, the Canadian Dollar/US Dollar misalignments are characterized by higher volatility after the adoption of the Plaza Accord.

Keywords: Equilibrium exchange rates, Spectral analysis, Plaza Accord, Euro

JEL Classification: F31, F33, C14

Suggested Citation

Grossmann, Axel and Orlov, Alexei G., Exchange Rate Misalignments in Frequency Domain (2012). International Review of Economics and Finance, Vol 24, No. 1, 2012, Available at SSRN: https://ssrn.com/abstract=2424351

Axel Grossmann

Radford University ( email )

PO Box 6916
Radford, VA 24142
United States

Alexei G. Orlov (Contact Author)

Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

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