Idiosyncratic variation of the US Dollar

Michael Kunkler and Ronald MacDonald

Economics Letters, 2016, vol. 144, issue C, 7-9

Abstract: We address the role of the US dollar when constructing a set of systematic (statistical) factors from a group of US dollar exchange rates. Researchers usually regard the US dollar as wholly systematic. In this paper, however, we are able to decompose the US dollar and other currencies into systematic and idiosyncratic factors using the global prices for currencies, rather than US dollar exchange rates. Using monthly data over a period of more than 44 years, we find that approximately 25% of the total variation for the US dollar can be attributed to idiosyncratic variation.

Keywords: Exchange rates; Currency variation; Statistical factor models (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:144:y:2016:i:c:p:7-9

DOI: 10.1016/j.econlet.2016.04.021

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