Hu,W. (2024) “Inflation Targeting and Exchange Rate Predictability in Low-income Economies” (Working paper)
Abstract:
Previous research on the nominal exchange rate (NER) out-of-sample predictability suggests that the current real exchange rate (RER) provides significant evidence in the inflation targeting (IT) adopted advanced economies (AEs) and emerging economies (EMEs). This research fills a gap in the
literature by investigating 11 low-income countries (LICs) that adopted IT beginning in the late 2000s. For most LICs, 1- to 48-months ahead out-of-sample exchange rate predictability significantly increases after IT adoption. The results are robust after considering various bootstrapped out-of-sample
statistics (e.g. bootstrapped Diebold–Mariano–West(DMW) statistic), forecasting schemes, and impacts from the zero lower bound (ZLB) and COVID-
19 pandemic.
Hu,W. (2025) "Impact of the Russia-Ukraine War on Anchor Currency Choice: Evidence from the Caucasus and Central Asia" ( Working paper)
Abstract:
This study shows that the Russia-Ukraine conflict has had a significant impact on the choice of anchor currency in countries of the Caucasus and Central Asia (CCA). Trade reallocation from the EU to the CCA region due to sanctions on Russia has increased the estimated weight of the euro (EUR) in CCA countries' de facto currency baskets.
Hu,W. (2024) “Exchange rate reconnect? Central bank independence and the GBP/USD exchange rate” (Working Paper)
Abstract:
This paper proposes the degree of central bank independence (CBI) as an explanation for the long-standing exchange rate disconnect puzzle in international macroeconomics, which is, the failure of macroeconomic fundamentals to predict exchange rates. To explore how changes in CBI influences the connection between exchange rates and macroeconomic variables, I first identify historical changes in CBI levels in the United Kingdom and compare them with structural changes in monetary responses to inflationary pressure. Considering CBI improvements in empirical models of the USD/GBP nominal exchange rate substantially improves their predictive power. In particular, over the whole sample period (October 1986-September 2008) the exchange rate disconnect puzzle remains dominant. However, sub- periods following CBI increases implies that use of the Taylor rule model with U.K. forecasted variables, which offers a better prediction of exchange rate than the random walk model. Both in-sample and out-of-sample tests reject the no-predictability null hypothesis. These results support the hypothesis that CBI ”reconnects” the exchange rate with macroeconomic variables through shifts of monetary policy regimes.