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.
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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
Discussion Overview The paper s single equation Control variables Orthogonalization Data details
The papers single equation Control variables Orthogonalization Data details
The papers equation + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ??
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Currency Depreciation
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation Currency weights
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation Currency weights Regional effect
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Trend depreciation Currency weights Regional effect Control variables
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? An apportionment exercise
+ ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? 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
The papers single equation Control variables Orthogonalization Data details
Seminal work Frankel & Wei, 1994
Frankel & Wei, 1994 ? $ ?? + ?? $ ?? ??= ? + ?? ??+ ?? ?? ??
Frankel & Wei, 1994 ? $ ?? + ?? $ ?? ??= ? + ?? ??+ ?? ?? ?? Trend depreciation Currency weights
Frankel & Wei, 1994 ?? + ?? ?+ ?? Control variables ? $ ?? + ??? ?? Regional effect $ ?? ??= ? + ?? ??+ ?? ?? ??
Frankel & Wei, 1994 Q: Why? ?? + ?? ?+ ?? Control variables ? $ ?? + ??? ?? Regional effect $ ?? ??= ? + ?? ??+ ?? ?? ??
Frankel & Wei, 1994 Q: Why? ?? + ?? ?+ ?? Control variables ? $ ?? + ??? ?? Regional effect $ ?? ??= ? + ?? ??+ ?? ?? ?? A: Including them would be overcontrolling.
Example: potential Control variable How does a pandemic affect labor? ? (Or leisure; take your pick.)
???? = ?? + ??????? ??????????? + + ??? The variable of interest
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Add this Control variable?
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Add this Control variable? (No, don t.)
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ???
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ???
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Commuting is a mechanism through which COVID affects?.
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Commuting is a mechanism through which COVID affects?. ( Commuting time resides in the causal pathway.)
???? = ?? + ??????? ??????????? + ??????????? ???????+ + ??? Including such a control variable inappropriately removes relevant variation from the variable of interest.
Another Example: Mincer Equation ???? = ?? + ????????????? + ???????????? ???+ + ??? Including such a control variable inappropriately removes relevant variation from the variable of interest.
This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? The apportionment exercise
This paper + ??? ? = ? + ?? $ + ?? ?? Including commodities & volatility proxies removes differentially relevant variation. ? + ?? ?+ ?? $ ?? ?? ??
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.
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
The papers single equation Control variables Orthogonalization Data details
Cited Work: Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ??
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Currency weights Regional effect Control variables
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ??
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Orthogonalized vis- -vis the base currency
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Orthogonalized vis- -vis the base currency Orthogonalized vis- -vis both other currencies
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Orthogonalized vis- -vis the base currency Orthogonalized vis- -vis both other currencies Why?
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? Regression sorts out the covariances. Q: Why constrain the regression?
Fratzscher & Mehl, 2014 EJ $ ?+ ??? ?+ ??? ? ? = ? + ?? ? ?+ ?? ?+ ?? $ ?? ?? ?? ?? A: To provide an identification structure.
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.
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.
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.
This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ??
This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? Q: Why handicap the regression? the
This paper + ??? ? = ? + ?? $ + ?? ?? ? + ?? ?+ ?? $ ?? ?? ?? (Q: And, why handicap it in this asymmetric way?) the