The common component of bilateral US exchange rates: to what is it related?

Natalia Ponomareva; Jeffrey Sheen; Ben Zhe Wang

doi:10.1007/s00181-017-1395-2

The common component of bilateral US exchange rates: to what is it related?

Natalia Ponomareva, Jeffrey Sheen, Ben Zhe Wang^*

^*Corresponding author for this work

Department of Economics

Research output: Contribution to journal › Article › peer-review

5 Citations (Scopus)

Abstract

Using principal component analysis, we identify a common component driving a panel of 15 monthly bilateral exchange rates against the US dollar. We find this common (first principal) component is related to the fundamentals commonly used in exchange rate determination models, such as US nominal and real macroeconomic variables, financial market variables and commodity prices. We obtain the relevant set of fundamentals using the Lasso (least absolute shrinkage and selection operator) technique and find that this set changes over time.

Original language	English
Pages (from-to)	1251-1268
Number of pages	18
Journal	Empirical Economics
Volume	56
Issue number	4
Early online date	3 Jan 2018
DOIs	https://doi.org/10.1007/s00181-017-1395-2
Publication status	Published - Apr 2019

Keywords

Commodities
Exchange rate models
Lasso
Principal component analysis

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The common component of bilateral US exchange rates: to what is it related?

Abstract

Keywords

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