The Common Factor of Bilateral U.S. Exchange Rates: What is it Related to?

Natalia Ponomareva, Jeffrey Sheen and Ben Wang

MPRA Paper from University Library of Munich, Germany

Abstract: We identify a common factor driving a panel of fifteen monthly bilateral exchange rates against the U.S. dollar. We find this factor is closely related to U.S. nominal and real macroeconomic variables, financial market variables and commodity prices. Our results suggest this common factor is broadly related to the macroeconomic fundamentals in the Taylor rule and uncovered interest parity models. However, the set of fundamentals relevant to these models changes over time.

Keywords: Principal Component Analysis; Exchange Rate Models (search for similar items in EconPapers)
JEL-codes: C52 F31 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68966

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