The paper reports strikingly high correlations of the cyclical components of industrial production between the participant countries in the ERM. Supplementing these correlations with criteria based on real exchange rate volatility, trade and monetary policy conformity, cluster analysis is used...

There has been serious suspicion of a spurious rejection of the unit roots in panel studies of PPP due to the failure to control for cross-sectional dependence. This article presents evidence of mean-reversion in industrial country real exchange rates in a set up that accounts naturally for...

The purpose in this letter is first to review briefly the empirical results on the relationship between real interest rates and real exchange rates; this empirical literature provides little support for the hypothesis of Roll that expected real interest rates are equal in general. Our second aim...

The half-life of deviations from purchasing power parity (PPP) plays a central role in the ongoing debate about the ability of macroeconomic models to account for the time series behaviour of the real exchange rate. The main contribution of this paper is a general framework in which alternative...

In this paper we develop a mixed frequency dynamic factor model featuring stochastic shifts in the volatility of both the latent common factor and the idiosyncratic components. We take a Bayesian perspective and derive a Gibbs sampler to obtain the posterior density of the model parameters. This...

We investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the Eurozone. Real exchange rate patterns closely accord with an amended Balassa-Samuelson interpretation, both in cross-section and time series. We construct a sticky price...

The relationship between international payments and the real exchange rate - the ‘transfer problem’ - is one of the classic questions in international economics. In this paper we use cross-country data on real exchange rates and a newly constructed data set on countries’ net external...

We analyze the policy trade-offs generated by local currency price stability of imports in economies where upstream producers strategically interact with downstream firms selling the final goods to consumers. We study the effects of staggered price setting at the downstream level on the optimal...

The real exchange rate has been called the single most important price in an economy, yet its behaviour exhibits several puzzles. In this project, we use Big Mac prices as a unique prism to study the movement of real exchange rates. Part of our innovation is to match these prices to the prices...

We evaluate the quantitative effects of introducing costs of transporation into an international trade model. We model these costs through the introduction of international transportation services sector. Costs of transportation have substantial long-run effects on welfare and may impact on the...