Insights on Global Currencies: Roger Vicquer's Analysis

Helen Popper from Santa Clara University shared insightful commentary on Roger Vicquery's research paper "The Rise and Fall of Global Currencies over Two Centuries" at the Financial Globalization and De-Globalization Conference in May 2021. The discussion delved into control variables, orthogonalization, data details, equations, currency depreciation, trend analysis, regional effects, and a comparison with other seminal works in the field, such as Frankel & Wei's 1994 study.

• Global currencies
• Financial globalization
• Currency depreciation
• Trend analysis
• Research commentary

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1. Comments on Roger Vicqu ry s The Rise and Fall of Global Currencies over Two Centuries Helen Popper Santa Clara University Prepared for the May 3-4, 2021 Conference, Financial Globalization and De-Globalization

2. Discussion Overview The paper s single equation Control variables Orthogonalization Data details

3. The papers single equation Control variables Orthogonalization Data details

4. The papers equation + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ??

5. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Currency Depreciation

6. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation

7. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation Currency weights

8. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation Currency weights Regional effect

9. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation Currency weights Regional effect Control variables

10. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? An apportionment exercise

11. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? An apportionment exercise In good company: Engel s Accounting for U.S. Real Exchange Rate Changes, 1999 JPE Ito & McCauley A key currency view of global imbalances 2019 JIMF

12. The papers single equation Control variables Orthogonalization Data details

13. Seminal work Frankel & Wei, 1994

14. Frankel & Wei, 1994 ? $ ?? + ?? $ ?? ??= ? + ?? ??+ ?? ?? ??

15. Frankel & Wei, 1994 ? $ ?? + ?? $ ?? ??= ? + ?? ??+ ?? ?? ?? Trend depreciation Currency weights

16. Frankel & Wei, 1994 ?? + ?? ?+ ?? Control variables ? $ ?? + ??? ?? Regional effect $ ?? ??= ? + ?? ??+ ?? ?? ??

17. Frankel & Wei, 1994 Q: Why? ?? + ?? ?+ ?? Control variables ? $ ?? + ??? ?? Regional effect $ ?? ??= ? + ?? ??+ ?? ?? ??

18. Frankel & Wei, 1994 Q: Why? ?? + ?? ?+ ?? Control variables ? $ ?? + ??? ?? Regional effect $ ?? ??= ? + ?? ??+ ?? ?? ?? A: Including them would be overcontrolling.

19. Example: potential Control variable

20. Example: potential Control variable How does a pandemic affect labor? ? (Or leisure; take your pick.)

21. ???? = ?? + ??????? ??????????? + + ???

22. ???? = ?? + ??????? ??????????? + + ??? The variable of interest

23. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Add this Control variable?

24. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Add this Control variable? (No, don t.)

25. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ???

26. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ???

27. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Commuting is a mechanism through which COVID affects?.

28. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Commuting is a mechanism through which COVID affects?. ( Commuting time resides in the causal pathway.)

29. ???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Including such a control variable inappropriately removes relevant variation from the variable of interest.

30. Another Example: Mincer Equation ???? = ?? + ????????????? + ???????????? ???+ + ??? Including such a control variable inappropriately removes relevant variation from the variable of interest.

31. This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? The apportionment exercise

32. This paper + ??? ? = ? + ?? $ + ?? ?? Including commodities & volatility proxies removes differentially relevant variation. ? + ?? ?+ ?? $ ?? ?? ??

33. This paper Needed: 1. Precise details of the commodity and volatility proxies in For element in , what s the causal mechanism requires its inclusion, or requiring its exclusion? 2.

34. Key Related works Ito & McCauley (2019, JIMF) Follow Frankel & Wei (no controls); Commodity country status matters. Mitchener & Pina (2020, JIMF) Commodity prices drive pegs (and their demise) Meissner & Oomes (2009, JIMF) Anchors chosen to minimize volatility

35. The papers single equation Control variables Orthogonalization Data details

36. + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ??

37. Cited Work: Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ??

38. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Currency weights Regional effect Control variables

39. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ??

40. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Orthogonalized vis- -vis the base currency

41. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Orthogonalized vis- -vis the base currency Orthogonalized vis- -vis both other currencies

42. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Orthogonalized vis- -vis the base currency Orthogonalized vis- -vis both other currencies Why?

43. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Regression sorts out the covariances. Q: Why constrain the regression?

44. Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? A: To provide an identification structure.

45. Fratzscher & Mehl, 2014 EJ Orthogonalize for a specific reason: Their objective: identify the unique role of the RMB Their problem: the RMB comoves with the U.S. dollar.

46. Fratzscher & Mehl, 2014 EJ Orthogonalize for a specific reason: Their objective: identify the unique role of the RMB Their problem: the RMB comoves extensively with the U.S. dollar in their sample period.

47. Fratzscher & Mehl, 2014 EJ Their solution: orthogonalize to avoid the dollar effect. They address the problem of severe multicollineary in the context of the specific purpose of their paper.

48. This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ??

49. This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Q: Why handicap the regression? the

50. This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? (Q: And, why handicap it in this asymmetric way?) the

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