The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate

This paper presents a theoretical framework analysing the signalling channel of exchange rate interventions as an informational trigger. We develop an implicit target zone framework with learning in order to model the signalling channel. The theoretical premise of the model is that interventions convey signals that communicate information about the exchange rate objectives of central bank. The model is used to analyse the impact of Japanese FX interventions during the period 1999 -2011 on the yen/US dollar dynamics.

The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate

This paper presents a theoretical framework analysing the signalling channel of exchange rate interventions as an informational trigger. We develop an implicit target zone framework with learning in order to model the signalling channel. The theoretical premise of the model is that interventions convey signals that communicate information about the exchange rate objectives of central bank. The model is used to analyse the impact of Japanese FX interventions during the period 1999 -2011 on the yen/US dollar dynamics.

Co-movements in Real Effective Exchange Rates: Evidence from the Dynamic Hierarchical Factor Model

We analyze and quantify co-movements in real effective exchange rates while considering the regional location of countries. More specifically, using the dynamic hierarchical factor model (Moench et al. (2011)), we decompose exchange rate movements into several latent components; worldwide and two regional factors as well as country-specific elements. Then, we provide evidence that the worldwide common factor is closely related to monetary policies in large advanced countries while regional common factors tend to be captured by those in the rest of the countries in a region. However, a substantial proportion of the variation in the real exchange rates is reported to be country-specific; even in Europe country-specific movements exceed worldwide and regional common factors.

Currency Forecast Errors at Times of Low Interest Rates: Evidence from Survey Data on the Yen/Dollar Exchange Rate

Using survey expectations data and Markov-switching models, this paper evaluates the characteristics and evolution of investors' forecast errors about the yen/dollar exchange rate. Since our model is derived from the uncovered interest rate parity (UIRP) condition and our data cover a period of low interest rates, this study is also related to the forward premium puzzle and the currency carry trade strategy. We obtain the following results. First, with the same forecast horizon, exchange rate forecasts are homogeneous among different industry types, but within the same industry, exchange rate forecasts differ if the forecast time horizon is different. In particular, investors tend to undervalue the future exchange rate for long term forecast horizons; however, in the short run they tend to overvalue the future exchange rate. Second, while forecast errors are found to be partly driven by interest rate spreads, evidence against the UIRP is provided regardless of the forecasting time horizon; the forward premium puzzle becomes more significant in shorter term forecasting errors. Consistent with this finding, our coefficients on interest rate spreads provide indirect evidence of the yen carry trade over only a short term forecast horizon. Furthermore, the carry trade seems to be active when there is a clear indication that the interest rate will be low in the future.

Price Transmission and Effects of Exchange Rates on Domestic Commodity Prices via Offshore and Currency Hedging

The framework presents how trading in the foreign commodity futures market and the forward exchange market can affect the optimal spot positions of domestic commodity producers and traders. It generalizes the models of Kawai and Zilcha (1986) and Kofman and Viaene (1991) to allow both intermediate and final commodities to be traded in the international and futures markets, and the exporters/importers to face production shock, domestic factor costs and a random price. Applying mean-variance expected utility, we find that a rise in the expected exchange rate can raise both supply and demand for commodities and reduce domestic prices if the exchange rate elasticity of supply is greater than that of demand. Whether higher volatilities of exchange rate and foreign futures price can reduce the optimal spot position of domestic traders depends on the correlation between the exchange rate and the foreign futures price. Even though the forward exchange market is unbiased, and there is no correlation between commodity prices and exchange rates, the exchange rate can still affect domestic trading and prices through offshore hedging and international trade if the traders are interested in their profit in domestic currency. It illustrates how the world prices and foreign futures prices of commodities and their volatility can be transmitted to the domestic market as well as the dynamic relationship between intermediate and final goods prices. The equilibrium prices depends on trader behaviour i.e. who trades or does not trade in the foreign commodity futures and domestic forward currency markets. The empirical result applying a two-stage-least-squares approach to Thai rice and rubber prices supports the theoretical result.

Exchange Rate Predictability in a Changing World

An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world however, Taylor rule parameters may be subject to structural instabilities, for example during the Global Financial Crisis. This paper forecasts exchange rates using such Taylor rules with Time Varying Parameters (TVP) estimated by Bayesian methods. In core out-of-sample results, we improve upon a random walk benchmark for at least half, and for as many as eight out of ten, of the currencies considered. This contrasts with a constant parameter Taylor rule model that yields a more limited improvement upon the benchmark. In further results, Purchasing Power Parity and Uncovered Interest Rate Parity TVP models beat a random walk benchmark, implying our methods have some generality in exchange rate prediction.

Measuring the Euro-Dollar Permanent Equilibrium Exchange Rate using the Unobserved Components Model

This paper employs an unobserved component model that incorporates a set of economic fundamentals to obtain the Euro-Dollar permanent equilibrium exchange rates (PEER) for the period 1975Q1 to 2008Q4. The results show that for most of the sample period, the Euro-Dollar exchange rate closely followed the values implied by the PEER. The only significant deviations from the PEER occurred in the years immediately before and after the introduction of the single European currency. The forecasting exercise shows that incorporating economic fundamentals provides a better long-run exchange rate forecasting performance than a random walk process.

On the Sources of Uncertainty in Exchange Rate Predictability

We analyse the role of time-variation in coefficients and other sources of uncertainty in exchange rate forecasting regressions. Our techniques incorporate the notion that the relevant set of predictors and their corresponding weights, change over time. We find that predictive models which allow for sudden rather than smooth, changes in coefficients significantly beat the random walk benchmark in out-of-sample forecasting exercise. Using innovative variance decomposition scheme, we identify uncertainty in coefficients' estimation and uncertainty about the precise degree of coefficients' variability, as the main factors hindering models' forecasting performance. The uncertainty regarding the choice of the predictor is small.

Transaction Costs and Institutions: Investments in Exchange

This paper proposes a simple model for understanding transaction costs for their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

Analyzing aggregate real exchange rate persistence through the lens of sectoral data

In this paper we analyze the persistence of aggregate real exchange rates (RERs) for a group of EU-15 countries by using sectoral data. The tight relation between aggregate and sectoral persistence recently investigated by Mayoral (2008) allows us to decompose aggregate RER persistence into the persistence of its different subcomponents. We show that the distribution of sectoral persistence is highly heterogeneous and very skewed to the right, and that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level. We use quantile regression to investigate whether the traditional theories proposed to account for the slow reversion to parity (lack of arbitrage due to nontradibilities or imperfect competition and price stickiness) are able to explain the behavior of the upper quantiles of sectoral persistence. We conclude that pricing to market in the intermediate goods sector together with price stickiness have more explanatory power than variables related to the tradability of the goods or their inputs.

Angiotensin II receptor blockade prevents acute renal sodium retention induced by low levels of orthostatic stress.

BACKGROUND: Depending on its magnitude, lower body negative pressure (LBNP) has been shown to induce a progressive activation of neurohormonal, renal tubular, and renal hemodynamic responses, thereby mimicking the renal responses observed in clinical conditions characterized by a low effective arterial volume such as congestive heart failure. Our objective was to evaluate the impact of angiotensin II receptor blockade with candesartan on the renal hemodynamic and urinary excretory responses to a progressive orthostatic stress in normal subjects. METHODS: Twenty healthy men were submitted to three levels of LBNP (0, -10, and -20 mbar or 0, -7.5, and -15 mm Hg) for 1 hour according to a crossover design with a minimum of 2 days between each level of LBNP. Ten subjects were randomly allocated to receive a placebo and ten others were treated with candesartan 16 mg orally for 10 days before and during the three levels of LBNP. Systemic and renal hemodynamics, renal sodium excretions, and the hormonal response were measured hourly before, during, and for 2 hours after LBNP. RESULTS: During placebo, LBNP induced no change in systemic and renal hemodynamics, but sodium excretion decreased dose dependently with higher levels of LBNP. At -20 mbar, cumulative 3-hour sodium balance was negative at -2.3 +/- 2.3 mmol (mean +/- SEM). With candesartan, mean blood pressure decreased (76 +/- 1 mm Hg vs. 83 +/- 3 mm Hg, candesartan vs. placebo, P < 0.05) and renal plasma flow increased (858 +/- 52 mL/min vs. 639 +/- 36 mL/min, candesartan vs. placebo, P < 0.05). Glomerular filtration rate (GFR) was not significantly higher with candesartan (127 +/- 7 mL/min in placebo vs. 144 +/- 12 mL/min in candesartan). No significant decrease in sodium and water excretion was found during LBNP in candesartan-treated subjects. At -20 mbar, the 3-hour cumulative sodium excretion was + 4.6 +/- 1.4 mmol in the candesartan group (P= 0.02 vs. placebo). CONCLUSION: Selective blockade of angiotensin II type 1 (AT1) receptors with candesartan increases renal blood flow and prevents the antinatriuresis during sustained lower body negative pressure despite a modest decrease in blood pressure. These results thus provide interesting insights into potential benefits of AT1 receptor blockade in sodium-retaining states such as congestive heart failure.

Energetics of RecA-mediated recombination reactions. Without ATP hydrolysis RecA can mediate polar strand exchange but is unable to recycle.

We demonstrate that the step of DNA strand exchange during RecA-mediated recombination reaction can occur equally efficiently in the presence or absence of ATP hydrolysis. The polarity of strand exchange is the same when instead of ATP its non-hydrolyzable analog adenosine-5'-O-(3-thiotriphosphate) is used. We show that the ATP dependence of recombination reaction is limited to the post-exchange stages of the reactions. The low DNA affinity state of RecA protomers, induced after ATP hydrolysis, is necessary for the dissociation of RecA-DNA complexes at the end of the reaction. This dissociation of RecA from DNA is necessary for the release of recombinant DNA molecules from the complexes formed with RecA and for the recycling of RecA protomers for another round of the recombination reaction.

Protein interaction data curation: the International Molecular Exchange (IMEx) consortium.

The International Molecular Exchange (IMEx) consortium is an international collaboration between major public interaction data providers to share literature-curation efforts and make a nonredundant set of protein interactions available in a single search interface on a common website (http://www.imexconsortium.org/). Common curation rules have been developed, and a central registry is used to manage the selection of articles to enter into the dataset. We discuss the advantages of such a service to the user, our quality-control measures and our data-distribution practices.

Effects of sodium arsenite on neurite outgrowth and glutamate AMPA receptor expression in mouse cortical neurons.

There has been broad concern that arsenic in the environment exerts neurotoxicity. To determine the mechanism by which arsenic disrupts neuronal development, primary cultured neurons obtained from the cerebral cortex of mouse embryos were exposed to sodium arsenite (NaAsO2) at concentrations between 0 and 2μM from days 2 to 4 in vitro and cell survival, neurite outgrowth and expression of glutamate AMPA receptor subunits were assessed at day 4 in vitro. Cell survival was significantly decreased by exposure to 2μM NaAsO2, whereas 0.5μM NaAsO2 increased cell survival instead. The assessment of neurite outgrowth showed that total neurite length was significantly suppressed by 1μM and 2μM NaAsO2, indicating that the lower concentration of NaAsO2 impairs neuritogenesis before inducing cell death. Immunoblot analysis of AMPA receptor subunit expression showed that the protein level of GluA1, a specific subunit of the AMPA receptor, was significantly decreased by 1μM and 2μM NaAsO2. When immunocytochemistry was used to confirm this effect by staining for GluA1 expression in neuropeptide Y neurons, most of which contain GluA1, GluA1 expression in neuropeptide Y neurons was found to be significantly suppressed by 1μM and 2μM NaAsO2 but to be increased at the concentration of 0.5μM. Finally, to determine whether neurons could be rescued from the NaAsO2-induced impairment of neuritogenesis by compensatory overexpression of GluA1, we used primary cultures of neurons transfected with a plasmid vector to overexpress either GluA1 or GluA2, and the results showed that GluA1/2 overexpression protected against the deleterious effects of NaAsO2 on neurite outgrowth. These results suggest that the NaAsO2 concentration inducing neurite suppression is lower than the concentration that induces cell death and is the same as the concentration that suppresses GluA1 expression. Consequently, the suppression of GluA1 expression by NaAsO2 seems at least partly responsible for neurite suppression induced by NaAsO2.