ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
Please use this identifier to cite or link to this item:
| || |
|Title:||The crisis in the foreign exchange market |
Taylor, Mark P.
|Issue Date:||2009 |
|Series/Report no.:||CESifo working paper 2707|
|Abstract:||The financial crisis of 2007-2008 had major implications for the foreign exchange market. We review events and implications for exchange rates, volatility, returns to currency investing, and transaction costs. This blow-by-blow narrative is intended to be a resource for researchers seeking a comprehensive review of the what, why and when of the financial crisis in terms of foreign exchange market dynamics. An implementable financial stress index (FSI) is created and then used to illustrate the dramatic nature of the current crisis compared to earlier crises. We also examine how the global FSI might have been used to condition the exposure to the carry trade (long high interest rate currencies, short low interest rate currencies) and we show that such an index has potential value in protecting a portfolio against loss during periods of stress, although this result is subject to the important caveats of controlling for transaction costs and timely recognition of the change in regime.|
|Document Type:||Working Paper|
|Appears in Collections:||CESifo Working Papers, CESifo Group Munich|
Download bibliographical data as:
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.