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A Network Model of Multilaterally Equilibrium Exchange Rates
Author:
Mr. Alexei P Kireyev
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and
Andrei Leonidov null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 130
Language:
English
Publication Date:
06 Jul 2016
DOI:
https://doi.org/10.5089/9781498351331.001
ISBN:
9781498351331
ISSN:
1018-5941
Pages:
23
Keywords:
WP; base currency; currency pair; world currency market; equilibrium exchange rates; exchange rate; networks; equilibrium; trade; network; exchange rate network; network consist; network stationarity; Exchange rates; Currencies; Currency markets; Exchange rate modelling; Reserve currencies; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper proposes a network model of multilaterally equilibrium exchange rates. The model introduces a topological component into the exchange rate analysis, consistently taking into account simultaneous higher-order interactions among all currencies. The paper defines the currency demand indicator. On its base, it derives a multilateral exchange rate network, finds its dynamically stationary position, and identifies the multilaterally equilibrium levels of bilateral exchanges rates. Potentially, the model can be developed further to calculate the deviations of the observed bilateral exchange rates from their multilaterally equilibrium levels, which can be interpreted as their over- or undervaluation. For illustration, the model is applied to daily 1995-2016 exchange rates among 130 currencies sourced from the Thomson Reuters Datastream.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund