When univariate methods are applied to real exchange rates, point estimates of autoregressive coefficients typically imply very slow rates of mean reversion. Rogoff (1996) discusses that the remarkable consensus of 3-5 year half-lives of purchasing power parity (PPP) deviations is found among...

The reduction of macroeconomic vulnerability in emerging markets is now at the core of the research agenda. Liability dollarization plays a vital role in the understanding of vulnerability and its implications (from a general equilibrium perspective) have been addressed in the literature via the...

The research addresses three methodological questions that are central to effective exchange rate and macroeconomic management: what are the determinants and how to model the real exchange rate (RER), how to estimate its equilibrium level, and how to quantify the likely impact of misalignment on...

A common feature of numerous studies on early warning systems (EWS) of currency crisis is the use of an index of exchange market pressure, defined as a weighted average of the rate of depreciation, the monthly percentage changes in international reserves, and sometimes the inclusion of the...

The paper analyzes the transmission mechanisms of fiscal shocks in a two-country general equilibrium model with sticky prices in line with the new open economy macroeconomics (NOEM) approach. Specifically, the model allows for both market segmentation and asymmetric preferences. We introduce...

Nominal exchange rates are remarkably volatile. They ordinarily appear disconnected from the fundamentals of the economies whose currencies they price. These facts make up a classic puzzle about the international economy. If prices do not respond fully to changes in the nominal exchange rate,...

Looking closely at the PPP argument, it states that the currencies purchasing power should not change when comparing the same basket goods across countries, and these goods should all be tradable. Hence, if PPP is valid at all, it should be captured by the relative price indices that best fits...

Abstract Recent financial crises showed that emerging countries are extremely vulnerable to sudden swings in international capital flows. In these countries, commonly, periods of relative tranquility, characterized by substantial capital inflows and real GDP growth, are followed by periods when...

This paper shows that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions...

The aim of the present paper is to analyze the pass-through from exchange rate to inflation in Brazil from 1980 to 2002. Initially, we developed a model of a profit-maximizing firm based on the pricing-to-market approach presented by FEENSTRA and KENDAL (1997). In order to adapt the model to the...