We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign...

We examine time varying integration of developed (DM) and emerging (EM) market government bonds. Although we find an upward trend for most countries and maturity bands, we do observe reversals and negative trends among both DMs and EMs and for some maturities during the financial crisis. We...

We review the literature on multi-horizon currency risk premiums. We show how the multi-horizon implications arise from the classic present-value relationship. We further show how these implications manifest themselves in the interaction between bond and currency risk premiums. This link is...

As the European Community (EC) unifies its financial markets and fixes its exchange rates, the EFTA countries are liberalizing capital movements to the same extent. The EFTA countries thus face a decision on financial markets and exchange rate policy: should they essentially join the European...

The conditions of the `new EMS' - an absence of exchange rate realignments and corresponding added credibility - have given rise to concern about the stabilization properties of the System. Nominal interest rate divergence may have been narrowed ahead of inflation divergence. Cross-country real...

We examine the effects of endogenously determined realignment expectations in a model of a target zone with sluggish price adjustment. We allow these expectations to be based on a policy rule which attaches differing weights to output and price stability. We find that for realistic parameter...

This chapter surveys recent theoretical and empirical contributions on foreign exchange rate determination. The chapter first examines monetary models under uncovered interest parity and rational expectations, and then considers deviations from UIP/rational expectations: foreign exchange risk...

The present study investigates possible existence of time varying risk premia in Brazilian real, Chinese yuan; Cypriot pound, Danish krone, Eurozone euro, French franc, Indian rupee, Japanese yen, Pakistani rupee, and British pound forward foreign exchange rates against US dollar. Exchange rates...

This article investigates the dynamics of regional financial integration and its determinants in an international setting. We test a conditional version of the International Capital Asset Pricing Model (ICAPM) accounting for the deviations from Purchasing Power Parity (PPP) as well as temporal...

For the small open economy of Botswana the PPP theory is validated in both the absolute and relative version for the Pula-Dollar exchange rate during the sample period 1992 third quarter to 2002 fourth quarter. The Pula-Dollar exchange rate is determined by the long-term trends in Botswana’s...