Principal components of the residuals are proposed for analysing between-group dependence when estimating PPP equations in large-T, large-N panels. If this dependence arises because omitted variables are correlated with included variables, the appropriate response to between-group dependences...

This paper presents a fully rational general equilibrium model that produces a time-varying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this two-country model, agents are characterized by slow-moving external habit preferences similar to Campbell &...

Empirical studies looking for changes over time in exchange rate pass-through to consumer prices generally consider the context of a changing inflation mean to examine this issue. This paper allows for endogeneity in exchange rate movements and proposes a new method to test this hypothesis for...

Currency crises are usually associated with large real depreciations. In some countries real depreciations are perceived to be very costly(''fear of floating''). In this paper we try to understand the reasons behind this fear. We first look at episodes of currency crises in the '90s and...