Handbook of Exchange Rates

8.6 Empirical Results

8.6.1 Data on Exchange Rates and Economic Fundamentals

The data sample consists of 414 monthly observations ranging from January 1976 to June 2010 and focuses on nine spot exchange rates relative to the USD: the AUD, CAD, CHF, Deutsche mark \ euro (EUR), GBP, JPY, NOK, NZD, and SEK. The exchange rate is defined as the USD price of a unit of foreign currency so that an increase in the exchange rate implies a depreciation of the USD. These data are obtained through the download data program (DDP) of the Board of Governors of the Federal Reserve System.¹⁶

Table 8.1 provides a detailed description of all data sources we use. For interest rates, we use the one-month euro deposit rate taken from Datastream with the following exceptions. For Japan, the euro deposit rate is only available from January 1979, and hence before this date, we use CIP relative to the USD to construct the no-arbitrage riskless rate. The one-month forward exchange rate required to implement CIP is taken from Hai et al. (1997). For Australia, Norway, New Zealand, and Sweden, euro deposit rates are only available from April 1997. For Australia and New Zealand, we combine the money market rate from January 1976 to November 1984 taken from the IMF's International Financial Statistics (IFS) and CIP relative to the USD from December 1984 to March 1997 using one-month forward exchange rates taken from Datastream. For Norway and Sweden, we use CIP relative to GBP from January 1976 to March 1997, ...