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Do Reserve Portfolios Respond to Exchange Rate Changes Using a Portfolio Rebalancing Strategy? An Econometric Study Using COFER Data

This paper tests whether reserve portfolios respond to exchange rate changes with a portfolio rebalancing strategy, which requires the purchase of depreciating currencies and sale of appreciating ones. The paper finds empirical support for the strategy, in particular that dollar depreciation/appreci...

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Bibliographic Details
Main Author: Lim, Ewe-Ghee
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2007
Series:IMF Working Papers
Subjects:
Government And The Monetary System
Payment Systems
Finance
Currency; Foreign Exchange
Monetary Economics
Regimes
Exchange Rate Adjustments
Money
International Financial Markets
Currency Markets
Foreign Exchange
Standards
Currencies
Monetary Systems
Foreign Exchange Market
Exchange Rates
Money And Monetary Policy
Reserve Currencies
Finance: General
United States
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper tests whether reserve portfolios respond to exchange rate changes with a portfolio rebalancing strategy, which requires the purchase of depreciating currencies and sale of appreciating ones. The paper finds empirical support for the strategy, in particular that dollar depreciation/appreciation results in rebalancing switches vis-a-vis the other major reserve currency, the euro; valuation changes in the minor currencies tend to result in switches among themselves. The finding implies that currency diversifications in response to exchange rate changes have thus far tended to be stabilizing for exchange markets; it also helps explain the relative stability of reserve currency shares
Physical Description:22 pages
ISBN:9781451868562

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