This paper reports estimates of monetary policy reaction functions for two sets of" countries: the G3 (Germany, Japan, and the U.S.) and the E3 (UK, France that since 1979 each of the G3 central banks has pursued an implicit form of inflation targeting which may account for the broad success of...

We address whether transaction flows in foreign exchange markets convey fundamental information. Our GE model includes fundamental information that first manifests at the micro level and is not symmetrically observed by all agents. This produces foreign exchange transactions that play a central...

We dissect the impact of a large and sudden exchange rate appreciation on Swiss border import prices, retail prices, and consumer expenditures on domestic and imported non-durable goods, following the removal of the EUR/CHF floor in January 2015. Cross-sectional variation in border price changes...

In this paper we develop and test two hypotheses about purchasing power parity (PPP) derived from the pricing behavior of profit- maximizing, exporting firms. The first is that changes in the price of traded goods relative to domestic substitutes, due to partial pass- through of exchange rates,...

Since the abandonment of the Bretton Woods system of fixed exchange rates in the early 1970s, exchange rates have displayed a surprisingly high degree of time-conditional volatility. This volatility can be explained statistically using autoregressive conditional heteroscedasticity models, but...

We present theory and evidence that challenges the view that forward premia contain little information regarding subsequent spot rate movements. Using weekly dollar-mark and dollar sterling data, we find that spot and forward exchange rates together are well represented by a vector error...

When estimates of variances are used to make asset allocation decisions, underestimates of population variances lead to lower expected utility than equivalent overestimates: a utility based criterion is asymmetric, unlike standard criteria such as mean squared error. To illustrate how to...

The theoretical literature on pricing-to-market has identified two possible reasons why the elasticity of prices to exchange rate changes may be asymmetric across appreciations and depreciations. If firms are attempting to increase market shares in foreign markets subject to the possibility of...

This paper reviews the recent literature on pass-through and pricing-to-market. Pricing-to market behavior is estimated for a new, larger data set with 60 German and 20 U.S. 7-digit industries. The results conform closely to what has been found elsewhere in smaller detailed data sets and at...

Market participants' forecasts of future exchange rate volatility can be recovered from option contracts on foreign currencies. Such implicit volatility forecasts for four currencies are used to test rational expectations jointly with the applicability of the standard Black-Scholes formula....