Strong economy, strong money
Ric Colacito, Steven R10 October 2019
The scientific literature suggests that exchange rates are disconnected from the state of the economy, and that macro variables that characterise the business cycle cannot explain asset prices while it is common to read in the press about linkages between the economic performance of a country and the evolution of its currency. This line shares proof of a link that is robust money returns and also the general energy for the company period within the cross-section of countries. A method that purchases currencies of strong economies and offers currencies of poor economies yields high returns both within the cross part and with time.
A core problem in asset rates could be the should realize the partnership between fundamental macroeconomic conditions and asset market returns (Cochrane 2005, 2017). Nowhere is this more central, and yet regularly hard to establish, compared to the exchange that is foreignFX) market, by which money returns and country-level fundamentals are extremely correlated the theory is that, yet the empirical relationship is usually discovered to be weak (Meese and Rogoff 1983, Rossi 2013). A current literary works in macro-finance has documented, nonetheless, that the behavior of change prices gets easier to explain once trade rates are examined in accordance with each other within the cross part, as opposed to in isolation ( e.g. Continue reading “Research-based policy commentary and analysis from leading economists”