While the global financial crisis was centered in the United States, it led to a surprising appreciation in the dollar, suggesting global dollar illiquidity. In response, the Federal Reserve partnered with other central banks to inject dollars into the international financial system. Empirical...

This Paper proposes a new framework for interpreting a currency crisis associated with a fiscal imbalance, which we find appropriate for the analysis of contemporary economies with outstanding public debt. Unlike the first-generation literature on speculative attacks, we do not assume that money...

The paper aims to develop understanding of why and how central banks have intervened in foreign exchange markets, and whether intervention was (i) coordinated, (ii) sterilized, and (iii) effective. The experience in the G-3 context is compared with the past EMS experience. In addition to foreign...

The stability of the EMS depends crucially on the realignment expectations of market participants. In this paper we discuss how to measure such expectations and how to relate them to economic fundamentals, central bank reputation, and the institutional arrangements of the EMS. We find the...

We examine the effects of endogenously determined realignment expectations in a model of a target zone with sluggish price adjustment. We allow these expectations to be based on a policy rule which attaches differing weights to output and price stability. We find that for realistic parameter...

If Stage Three of EMU starts on 1 January 1999, transition issues remain on two time scales. Until 1 July 2002, national currencies and the euro coexist as legal tender. We argue that intra-EMU currency risk exists in principle during that period, but that no EMU member can be forced out through...

A salient feature of recent currency speculations in the European Exchange Rate Mechanism is that the speculators can be big strategic players in the market, along with the central bank. This paper develops a game-theoretic model that captures this feature of the speculative market. For a regime...

Using the recent EC Commission report `One Market, One Money' as a point of reference, we consider the merits of a single currency in Europe. The main benefit is the reduction in transaction costs, which the report estimates at 0.4% of European Community (EC) GDP (but much less in countries with...

In this paper, we consider an alternative perspective to China's exchange rate policy. We study a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, we assume limited financial development generating a large...

This paper provides evidence of heterogeneous treatment effects on trade from switching among three types of de-facto exchange rate regimes: freely floating, currency bands, and pegs or currency unions. A cottage literature at the interface of macroeconomics and international economics focuses...