This paper studies the dynamics of six major exchange rates, and runs formal tests to distinguish among different types of nonlinearities. In particular we study exchange rate returns, normalized exchange rates and exchange rate volatilities, classifying these series using BDS test, correlation...

We examine out of sample predictive power of real time monetary models with nonlinear adjustment in forecast errors for the Pound Sterling/US Dollar exchange rates. Real time revisions of U.K. and U.S. monetary aggregates and output are significant. By studying recursive out of sample forecast...

The paper contributes to a recent empirical and theoretical literature that suggests that proprietors are an important group of stockholders and that entrepreneurial risk could therefore help explain time-varying risk premia on the aggregate stock market. I use the intertemporal budget...

This paper examines the welfare implications of managing Q with inflation targeting by monetary authorities who have to "learn" the laws of motion for both inflation and the rate of growth of Q. Our results show that the Central Bank can achieve great success in reducing the volatility of GDP...

The bond-equity yield ratio is defined as the ratio of the coupon yield on long government bonds to the dividend yield on equity. Commonly named in the UK as the gilt-equity yield ratio (GEYR), it has been argued to capture the relative value of bonds and equities through the differential in...

Past empirical research on monetary policy in open economies has found the “delayed overshootingâ€, the “forward discount†and the “exchange rate†puzzles. We revisit the effects of monetary policy on exchange rates by applying Uhlig's (2005) identification procedure...

This paper compares the goodness-of-fit and the stability of six methods used to extract risk-neutral probability density functions from currency option prices. We first compare five existing methods commonly employed to recover risk-neutral density functions from option prices. Specifically, we...

Current account crises in emerging markets are characterized by large increases in interest rates, big drops in output, and large real currency depreciations. Current models of crisis with financial frictions do not generate very large movements in these variables. Recent work has shown that the...

Persistent regressors pose a common problem in predictive regressions. Tests of the forward rate unbiased hypothesis (FRUH) constitute a prime example. Standard regression tests that strongly reject FRUH have been questioned on the grounds of potential long-memory in the forward premium....

Foreign exchange markets regularly display severe bubbles. This paper explores whether or not so-called target zone interventions are an effective tool for central banks to stabilize the exchange rate. We define such intervention operations as buying/selling an undervalued/overvalued currency...