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Real financial market exchange rates and capital flows

Maria Gelman, Axel Jochem and Stefan Reitz

No 50/2013, Discussion Papers from Deutsche Bundesbank

Abstract: Foreign exchange rates and capital movements are expected to be closely related to each other as international capital markets become more and more integrated. To account for this fact we construct an index of real effective exchange rates as a weighted average of cross-country asset price ratios. The empirical analysis reveals that a country's real financial effective exchange rate is cointegrated with net foreign holdings of its assets. Comparing the empirical performance of the new index with a standard effective exchange rate deflated by goods prices we find that only the former exhibits an influence on the international flow of capital.

Keywords: Real Effective Exchange Rate; Capital Flows; Financial Markets (search for similar items in EconPapers)
JEL-codes: E58 F31 G15 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-opm
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Citations: View citations in EconPapers (4)

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Journal Article: Real financial market exchange rates and capital flows (2015) Downloads
Working Paper: Real financial market exchange rates and capital flows (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:502013

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