The “hollowing-out,” or “two poles” hypothesis is tested in the context of a Markov chain model of exchange rate transitions. In particular, two versions of the hypothesis—that hard pegs are an absorbing state, or that fixes and floats form a closed set, with no transitions to...

Within a unified theory for stocks and corporate bonds, based on dynamic optimization by investors, this paper derives analytical expressions for the momentary distributions of expected price, respectively known to approximate lognormal with systematic deviations (high peak, fat tail) and double...

We analyze the effect of IMF programs on economic agents' expectations about the economy in transitional countries using survey data from the Central and Eastern Eurobarometer poll, an annual general public survey monitoring the evolution of public opinion from 1990 to 1997. Previous studies, in...

The paper analyzes and quantifies the importance of sovereign risk in determining corporate default premia (yield spreads). It also investigates the extent to which the practice by rating agencies and banks of not rating companies higher than their sovereign ("country or sovereign ceiling") is...

One approach to oil markets is to treat oil as an asset, besides its role as a commodity. Speculative and nonspeculative activity by investors in the derivatives markets could be responsible for a sizable increase in oil prices. This paper recognizes both the consumption and investment aspects...

This paper provides a selective overview of nonlinear exchange rate models recently proposed in the literature and assesses their contribution to understanding exchange rate behavior. Two key questions are examined. The first question is whether nonlinear autoregressive models of real exchange...

Following record low interest rates and fast depreciating U.S. dollar, crude oil prices became under rising pressure and seemed boundless. Oil price process parameters changed drastically in 2003M5-2007M10 toward consistently rising prices. Short-term forecasting would imply persistence of...

The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the...