We revisit the forward premium puzzle in the interwar period and find that, as the deviation from covered interest rate parity increases, the coefficient on the forward premium in the standard Fama regression tends towards zero.

This paper re-examines the empirical modeling of Purchasing Power Parity (PPP) deviations in the presence of commodity market frictions. First, we show that a specific type of smooth transition models can closely approximate the functional form of the theoretical adjustment mechanism derived by...

A new test for nonlinear causality and also nonparametric procedures suggest significant nonlinearity in the implementation of the Taylor rule by the Bank of Korea (BOK). In particular, the response to the output gap appears nonlinear.

Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. Most of these studies use temporally aggregated data to empirically estimate the nonlinear models. As noted by Taylor (2001), if the true DGP is nonlinear,...

The recent financial crisis exposed the inability of traditional theoretical and empirical models to parsimoniously capture the rich dynamics of the economic environment. This has stimulated the interest of both academics and practitioners in the development and application of more sophisticated...