UCL logo

UCL Discovery

UCL home » Library Services » Electronic resources » UCL Discovery

Short-run lats rate movements: impact of foreign currency shocks via trade and financial markets

Kazaks, M.; Qin, D.; (2002) Short-run lats rate movements: impact of foreign currency shocks via trade and financial markets. (Economics Working Papers 26). Centre for the Study of Economic and Social Change in Europe, SSEES, UCL: London, UK. Green open access

[img]
Preview
PDF
17551.pdf

Download (963kB)

Abstract

This paper investigates the short-run dynamic impact of foreign currency shocks on the deviations of Latvian lats vis-à-vis US dollar market spot rate from the parity set via lats' peg to SDR for the period from 1994 to 2000. The analysis is based on the standard theoretical model of dynamic cost adjustment, from which empirical models of the autoregressive distributed-lags form are derived. Reduction of several versions of such general models leads to a number of parsimonious and data congruent models. Our main findings from the modelling experiment are: Cross-currency shocks produce extensive impact on the net rate of lats, especially those shocks from the neighbouring transition economies, such as Estonia and Lithuania; These shocks may not be original, and may well act as transmission ports of other foreign currency shocks; The Russian crisis of August 1998 has exerted massive devaluation pressure on lats; The shocks are found to be transmittable via either trade and financial linkages, with the financial channel being the most contagious; Model configurations are found, however, neither unique nor definitely invariant, suggesting that it might be necessary to maintain several models in practice to fulfil different purposes in policy analyses and economic forecasting.

Type: Working / discussion paper
Title: Short-run lats rate movements: impact of foreign currency shocks via trade and financial markets
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.ssees.ucl.ac.uk/wp26sum.htm
Language: English
Keywords: Exchange rate determination, currency shock transmission, trade linkages, financial market linkages, capital mobility, transition
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > SSEES
URI: http://discovery.ucl.ac.uk/id/eprint/17551
Downloads since deposit
491Downloads
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item