Two propositions are common in the international finance literature: (1) the real exchange rate is a random walk, (2) the real exchange rate time series properties essentially depend on the nominal exchange rate regime. The first proposition has been used in support of the claim that PPP cannot...

In this paper, we extend the bank run literature to an open economy model. We show that a foreign banking system, by raising deposit rates in the presence of a domestic banking panic, may generate sufficient liquid resources to acquire assets sold by the domestic banking system at bargain...

In this paper, based on the experience of ten European countries, we study the relevance of seigniorage revenues in the recent past, and we speculate about their importance in the near future. We find that the members of the European community differ widely in the way they manage monetary...

This paper investigates the consequences of fiscal policies for the exchange rate. After developing a simple theory of how government financing policies should effect the exchange rate, we test it using data on the dollar/pound exchange rate. Previous analyses have concentrated mainly on the...

The paper considers the implications of the rational expectations New Classical Macroeconomics revolution for the 'rules versus discretion' debate. The following issues are covered: 1) The ineffectiveness of anticipated stabilization policy, 2) Non-clausal models and rational expectations, 3)...

The paper addresses two issues that arise in estimation of testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restrict ion is...

The paper investigates the robustness of the proposition that in stochastic models contingent or feddback rules dominate fiped or openloop rules. Four arguments in favour of fixed rules are considere`. 1) The presence of an incompetent op malevolent policy maker. 2) A trade-off between...

The paper presents a general solution method for rational expectations models that can be represented by systems of. deterministic first order linear differential equations with constant coefficients. It is the continuous time adaptation of the method of Blanchard and Kahn. To obtain a unique...

The distinctiof between predetermined and non-predetermined variables is a crucial one in rational expectations models. I consider and reject two definitions, one proposed by Blanchard and Kahn and one by Chow. Both definitions lead to possible misc1assifications. Instead I propose the following...

The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to domain over which the central bank can vary its policy rate. They are: (1) abolishing currency (which would also be a useful crime-fighting measure); (2) paying...