Drivers of exchange rate dynamics

The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and international drivers such as global trade, share prices, and oil price. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. The analysis is based on country VAR models augmented by a regional common factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and global drivers such as gold, oil and share prices. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. The drivers of exchange rates are explored in a FAVAR framework. The VAR model is a convenient tool to study the dynamic interactions that drive the evolution of nominal exchange rates (Elbourne and de Haan ). The basic VAR specification, however, is extended by a common-factor structure to proxy the regional element in the CIS exchange rates.

The drivers of exchange rates are explored in a FAVAR framework. The VAR model is a convenient tool to study the dynamic interactions that drive the evolution of nominal exchange rates. The basic VAR specification, however, is extended by a common factor structure to proxy the regional element in the CIS exchange rates. The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and global drivers such as gold, oil and share prices. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. drivers of exchange rate dynamics. In fact, research has shown that in the past there has always been a rather strong positive correlation between short-term EA-US interest rate differentials, in particular bond yields with a maturity of two years, and short-term movements in the EUR/USD. This paper will focus on the euro – US dollar.

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