A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’ : A Common Solution to Three Major Macroeconomic Puzzles?

Horioka, Charles Yuji; Ford, Nicholas

A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’ : A Common Solution to Three Major Macroeconomic Puzzles?

Horioka, Charles Yuji; Ford, Nicholas

Institute of Social and Economic Research Discussion Papers, 2016, 977, 1-5

アクセス数:161件（2025-05-22 03:00 集計）

固定URL: https://hdl.handle.net/11094/57386

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タイトル	A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’ : A Common Solution to Three Major Macroeconomic Puzzles?
著者	NRID 1000090173632 1000090173632 著者名 Horioka, Charles Yuji
著者	著者名 Ford, Nicholas
キーワード等	Exchange Rate Disconnect Puzzle
	exchange rate determination
	exchange rate volatility
	Feldstein‐Horioka puzzle or paradox
	financial market integration
	goods market integration
	international capital flows
	international capital mobility
	net transfers of capital
	PPP puzzle
	purchasing power parity puzzle
	real interest rate equalisation
	real interest rate parity
抄録	Meese and Rogoff (1983) and subsequent studies find that economic fundamentals are apparently not able to explain exchange rate movements, but we argue that this so‐called “Exchange Rate Disconnect Puzzle” arose because researchers such as Meese and Rogoff (1983) did not use the right fundamentals and because they did not allow for the forward‐looking nature of exchange rate determination. Further, because they apparently were not aware that financial markets by themselves could not equalise interest rates across countries, they did not properly appreciate that the exchange rate is strongly influenced by agents’ expectations of aggregated differences in local returns. Thus, we believe that the same underlying explanation provided by Ford (2015) and Ford and Horioka (2016a and 2016b) for the Feldstein‐Horioka (1980) Puzzle and the PPP Puzzle-- namely that financial markets alone cannot achieve net transfers of financial capital and cannot equalise real interest rates across countries‐‐also helps explain why previous attempts to connect changes in the exchange rate to economic fundamentals have not been successful, and so can also be said to contribute to solving the Exchange Rate Disconnect Puzzle.
出版者	The Institute of Social and Economic Research, Osaka University
収録物名	Institute of Social and Economic Research Discussion Papers
巻(号)	977
ページ	1-5
刊行年月	2016-07-13
言語	英語
ハンドルURL	https://hdl.handle.net/11094/57386
関連情報 (references)	URI https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2016/DP0977.pdf
アクセス権	metadata only access
カテゴリ	ディスカッション／ワーキング・ペーパー DP/WP
カテゴリ	Institute of Social and Economic Research Discussion Papers

資源タイプ	テクニカルレポート
ローカル資源タイプ	ディスカッション／ワーキング・ペーパー
DCMI資源タイプ	text
DCTERMS.bibliographicCitation	Institute of Social and Economic Research Discussion Papers. 2016, 977, p. 1-5
DC.title	A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’ : A Common Solution to Three Major Macroeconomic Puzzles?
DC.creator	Horioka, Charles Yuji
DC.creator	Ford, Nicholas
DC.publisher	The Institute of Social and Economic Research, Osaka University
DC.language' scheme='DCTERMS.RFC1766	英語
DC.type' scheme='DCTERMS.DCMIType	text
DCTERMS.issued' scheme='DCTERMS.W3CDTF	2016-07-13
DC.relation' scheme='DCTERMS.URI	https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2016/DP0977.pdf
DC.subject	Exchange Rate Disconnect Puzzle
	exchange rate determination
	exchange rate volatility
	Feldstein‐Horioka puzzle or paradox
	financial market integration
	goods market integration
	international capital flows
	international capital mobility
	net transfers of capital
	PPP puzzle
	purchasing power parity puzzle
	real interest rate equalisation
	real interest rate parity
DCTERMS.abstract	Meese and Rogoff (1983) and subsequent studies find that economic fundamentals are apparently not able to explain exchange rate movements, but we argue that this so‐called “Exchange Rate Disconnect Puzzle” arose because researchers such as Meese and Rogoff (1983) did not use the right fundamentals and because they did not allow for the forward‐looking nature of exchange rate determination. Further, because they apparently were not aware that financial markets by themselves could not equalise interest rates across countries, they did not properly appreciate that the exchange rate is strongly influenced by agents’ expectations of aggregated differences in local returns. Thus, we believe that the same underlying explanation provided by Ford (2015) and Ford and Horioka (2016a and 2016b) for the Feldstein‐Horioka (1980) Puzzle and the PPP Puzzle-- namely that financial markets alone cannot achieve net transfers of financial capital and cannot equalise real interest rates across countries‐‐also helps explain why previous attempts to connect changes in the exchange rate to economic fundamentals have not been successful, and so can also be said to contribute to solving the Exchange Rate Disconnect Puzzle.
DC.format	57386
citation_title	A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’ : A Common Solution to Three Major Macroeconomic Puzzles?
citation_author	Horioka, Charles Yuji
citation_author	Ford, Nicholas
citation_publisher	The Institute of Social and Economic Research, Osaka University
citation_language	英語
citation_date	2016-07-13
citation_journal_title	Institute of Social and Economic Research Discussion Papers
citation_volume	977
citation_firstpage	1
citation_lastpage	5
citation_public_url	https://hdl.handle.net/11094/57386
citation_abstract_html_url	https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2016/DP0977.pdf

A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’ : A Common Solution to Three Major Macroeconomic Puzzles?

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