A stable aggregate currency revisited: Highlighting some fundamental issues

Michael Kunkler

Economics Letters, 2023, vol. 231, issue C

Abstract: A multicurrency numéraire is a weighted basket of currencies, where the weights sum to zero and all weights are positive. A stable aggregate currency is an optimal multicurrency numéraire, which is estimated using a minimum-variance portfolio optimisation. The variables of the portfolio optimisation are invariant currency indexes, which are multilateral exchange rates and are priced in terms of an equally-weighted basket of the currencies. This paper shows that there are some fundamental issues with the concept of a stable aggregate currency. Once these issues have been resolved, it is shown that the portfolio optimisation problem is infeasible.

Keywords: Exchange rates; Stable aggregate currency (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523002926

DOI: 10.1016/j.econlet.2023.111267

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