tag:blogger.com,1999:blog-2198942534740642384.post5908180391195915480..comments2023-10-24T03:16:41.009-07:00Comments on Econometrics Beat: Dave Giles' Blog: Cracking the Code of the Effective Exchange RateDave Gileshttp://www.blogger.com/profile/05389606956062019445noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2198942534740642384.post-35779308710818517352014-11-10T05:03:28.321-08:002014-11-10T05:03:28.321-08:00This blog is about econometrics, which help to kno...This blog is about econometrics, which help to know more about economics.Foreign Money Exchange Ratehttp://bitcoinsnorway.com/noreply@blogger.comtag:blogger.com,1999:blog-2198942534740642384.post-33711834114787479902012-01-21T10:37:16.996-08:002012-01-21T10:37:16.996-08:00Thanks for the comments. I wish I did have a sugge...Thanks for the comments. I wish I did have a suggestion, but I really don't. It seems to me that if the weights are "time-varying", then you'd to tell a story about (ie., model) this part of the problem. This would suggest a random coefficients regression model, but beyond that........Dave Gileshttps://www.blogger.com/profile/05389606956062019445noreply@blogger.comtag:blogger.com,1999:blog-2198942534740642384.post-52267191944044271162012-01-08T07:11:35.235-08:002012-01-08T07:11:35.235-08:00First let me say that I love your blog. Keep up wi...First let me say that I love your blog. Keep up with the good posts!<br /><br />I have a harder code for you:<br /><br />How would you try to decode the currency wights on a central banks' FX reserves portfolio? I tried to do this after my country's central bank decided to join in the "currency wars" and accumulate reserves in order to fight overvaluation of the local currency, but it did not specify (understandably) the diversification of his purchases.<br />The problem is of course time varying wheights, and that I don't know if the bank is trying to stabilize against a specific bilateral exchange rate (USD is the obvious choice) or against a trade weighted exchange rate.<br /><br /><br /><br />Any ideas?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2198942534740642384.post-26072078103317896202012-01-06T22:31:25.498-08:002012-01-06T22:31:25.498-08:00John: Thanks for the very interesting comment.
T...John: Thanks for the very interesting comment. <br /><br />The real GDP example you mention is a case of an "allocation model", and in the absence of dynamics (lagged dependent variables) there are some standard things we can do. As you note, because the VAR model has lagged dependent variables as regressors, this complicates matters.<br /><br />Getting back to the TWI example I discussed, there's no need for using AIC or BIC. We all had the trade data, so the ranking of currencies was known with certainty. So, It was just a matter of "going down the list" until the perfect fot was encountered, as it had to be at some point.<br /><br />Anyway, your comments were most insightful. Thanks!Dave Gileshttp://davegiles.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-2198942534740642384.post-68785296080203937872012-01-06T12:03:44.980-08:002012-01-06T12:03:44.980-08:00Zero error. Interesting post. An alternate strateg...Zero error. Interesting post. An alternate strategy may be to do the PCA of all the currencies and add in factors until you get R^2=1, or by some AIC/BIC criteria.<br /><br />A similar case is something like a VAR in levels on real GDP and its constituents. The next period real GDP equals the sum of the forecasts of its constituents (assuming away any trickiness with chain weighting for the moment). However, when you forecast the errors from the VAR, it may not be consistent with this. When done in changes, the VAR above is like what you do with the effective exchange rates, except that the weights are actually time-varying. <br /><br />The simplest solution is to just exclude real GDP from the VAR and calculate it afterward as an identity.<br /><br />However, for many economic time series with sub-components, the weights are time-varying. Either those weights are difficult to find (like the time-varying weights on the constituents of inflation or IP, which are both indices rather than dollar values) or nigh on impossible to find. This implies you would need to estimate something like 4, but under the assumption that the Betas are autoregressive or something.John Hallnoreply@blogger.com