it possible to detect a robust relationship between productivity and the . The Balassa-Samuelson effect in Central and Eastern Europe: Myth. Frankel, Jeffrey, , “The Balassa-Samuelson Relationship and the Renminbi,” a, An IEO Evaluation of IMF Exchange Rate Policy Advice: – The Harrod Balassa Samuelson (HBS) effect (Balassa (), Harrod () ✩ I gratefully acknowledge Phillippe Martin for his advice and encouragement. shared and the equilibrium relationship holds for these two alternative variables.
Does Germany need a weak euro? In Germany there is a strong industry lobby suggesting that the weak euro only helps the country. The problem is that austerity in the periphery kills some of their exports. Giving the periphery money so that they can pay for the German goods with loans — like before — does not make sense any more. Until the s, the German Mark appreciated continuously, but the German current account surplus remained stable.
When labor became more expensive, Germans improved the efficiency of the processes and technology. Labor was simply replaced with capital and technology that became cheaper with a stronger currency. New more sophisticated jobs were created. Consumers were happy about low inflation and spent money. Only a rapid revaluation of a currency imposes a threat, because technology and process improvements cannot match it quickly enough.
Therefore the SNB performed interventions in and knowing that it would not help in the mid-term. A controlled appreciation of a currency is not a weakness and does not lead to unemployment. The opposite is the case for a weak currency: Often companies are too inflexible to use the cheap labor or they lack capital to do new business and projects based on it.
What works to produce sustainable returns in currency? - Record Currency Macro
Therefore, it generally takes two to three years to see a significant improvement for example, Argentina. If the euro zone had kicked out Greece inthe improvement phase would have started by now.
As Jim Rickards says: That you help exports with a cheaper currency is not true. Germany has been an export power house for 50 years and they had a strong currency for 50 years. Education, innovation, investment, technology, good business climate, low taxes counts. Read the basis for structually strong economies: Several Swiss and international financial advisors support the site.
These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers.
George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
(5.3) FX Theory: Penn Effect and Balassa Samuelson Effect
In a data-generating process where there are no autoregressive or mean-reverting elements, the variance does not depend on the time horizon and hence the volatility of the associated time series should be similar regardless of the horizon at which it is measured. By contrast, in a trending time series the variance increases as the time horizon increases. Intuitively, volatility at the near end of a trend should be lower than in the trend taken as a whole.
Figure 3 shows that this applies to six major currency pairs, and on average in the G10 currency universe. WM Reuters, Macrobond, Record. Volatility for all horizons except the 1 day horizon is calculated using currency surprise with a 1m tenor.
The 1 day horizon is calculated using spot returns. Why do currencies exhibit momentum? Firstly, information may filter through to market participants at different time horizons, so that the market reacts in a staggered fashion to new information. Secondly, herding behaviour trend-following strategies may themselves generate momentum in currencies, as market participants exacerbate trends by buying into them.
Thirdly, delta hedging of options may lead to tending behaviour. As the price of the underlying currency rises falls the delta of call put options rises, so entities short options must increase underlying long short positions in order to delta hedge. This introduces structural reasons why currencies trend. An investor who can identify and exploit these trends will find this a key potential source of return. Value Currencies tend to be mean-reverting at longer time horizons.
An investor who can correctly identify deviations from these equilibrium values and take a position reflecting convergence back to fair value will make a medium-run return.
PPP is the implied exchange rate that equilibrates the price of a specified basket of goods in two countries assuming each has their own exchange rate. This states that over the long term, sustained deviations from PPP cannot persist, because they would be arbitraged out consumers would see an opportunity to purchase goods only in the cheaper currency.
Those wishing to trade value in the EM universe may need a more complex valuation methodology. Naturally, optimal currency investing requires a sensible combination of these strategies, as well as nuanced implementation and effective risk management.
While not exhaustive, however, these strategies provide a basis for how investors can think intelligently about how to target returns in the currency space. Assumptions and Risk Warnings This material has been produced for professional investors. Certain assumptions around your knowledge of market practices, derivative instruments, and the associated risks are assumed as understood.
The views about the methodology, investment strategy and its benefits are those held by Record Currency Management Limited at the time of presentation. All data, unless otherwise stated in the footnote of the relevant page is as at 7th February and may have changed since. This material is provided for informational purposes only and is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities, Record Currency Management Ltd products or investment services.
There is no guarantee that any of the strategies and techniques will lead to superior investment performance. All beliefs based on statistical observation must be viewed in the context that past performance is no guide to the future. There is no guarantee that the manager will be able to meet return objectives and tracking error targets.
Changes in rates of exchange between currencies will cause the value of investments to decrease or increase. Before making a decision to invest, you should satisfy yourself that the product is suitable for you by your own assessment or by seeking professional advice.
Your individual facts and circumstances have not been taken into consideration in the production of this document.
Performance warnings Past performance is not a guarantee of future results. Portfolio returns are gross of fees and assume the reinvestment of all returns.
The investment return and principal value of an investment will fluctuate so that when realised, may be worth more or less than the original investment.