Which are the world's wobbliest currencies? Reference rates and their variation

Jennifer Zhu and Roger Bowden

No 33483, Working Paper Series from Victoria University of Wellington, School of Economics and Finance

Abstract: Measuring country exchange rates relative to a common reference basket results in a set of no-arbitrage prices, unlike trade-weighted indexes, the usual method of comparing country exchange rate histories. The single degree of freedom involved can be resolved by drawing on required economic interpretations or uses. We use currency reference rates to examine the historical variability of different currencies over designated cyclical horizons. The temporal decompositions used are those provided by wavelet analysis, which is light on maintained assumptions about data generating processes. some countries, notably Japan and New Zealand do exhibit a powerful but irregular medium term cycle, while others are much more stable. Implications are examined for investment, hedging, monetary policy and common currency studies.

Keywords: Currency volatility; Reference exchange rates; Reference basket; Spectral utility function; Wavelets (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:33483

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