In this paper we empirically investigate the relationship between capital flows and exchange rates in India based on a new index of real effective exchange rates for the Indian Rupiah. Instead of using consumer price indices we deflate exchange rates by MSCI asset price indices. The...

Tests for long-run purchasing power parity (PPP) may lack power with sample periods corresponding to the span of the recent float, leading researchers to use more powerful multivariate unit root tests. We point out a potential problem with such tests: joint non-stationarity of real exchange...

Between 1995 and 2005, the German economy has experienced a phase of weak economic growth. We analyze whether this weak growth performance can be attributed to the stance of monetary conditions during that period. We show that the real effective exchange rate did have almost no dampening effects...

Real exchange rates appear to present a specific behaviour in the early phase of transition: they are largely unaffected by nominal exchange rate movements and exhibit trend appreciation. The model presented here describes the transition process as the emergence of two new (traded and non-traded...

The results of this paper complement the recent findings of real exchange rates as stationary processes. The standard procedure of applying a battery of unit root tests can be problematic since the tests are sensitive to the specifics of the time-series process. The novelty of the approach we...

This paper examines the determinants of the real effective exchange rate (REER) in Brazil, from 1994 to 2003. Building on a standard theoretical model and based on the Johansen cointegration estimation, the main finding is that much of the long-run behavior of the REER can be explained by...

A recent literature has pointed at potential negative effects of exchange rate volatility on innovation. In this paper, we propose that there may be a direct effect as well as an indirect effect via export activity. We test these hypotheses for sectoral R&D intensities using OECD panel data for...

Tests of the null hypothesis of stationarity against the unit root alternative play an increasingly important role in empirical work in macroeconomics and in international finance. We show that the use of conventional asymptotic critical values for stationarity tests may cause extreme size...

This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds...

We propose that analysis of purchasing power parity (PPP) and the law of one price (LOOP) should explicitly take into account the possibility of ‘commodity points’ – thresholds delineating a region of no central tendency among relative prices, possibly due to lack of perfect arbitrage in...