This report studies the reaction of the level and volatility of the euro-dollar exchange rate to statements of ECB officials during the first years of EMU. We focus on statements on monetary policy and the (potential) strength of the euro. We find that the Bundesbank has dominated the news...

We propose in this paper a likelihood-based framework for cointegration analysis in panels of a fixed number of vector error correction models. Maximum likelihood estimators of the cointegrating vectors are constructed using iterated Generalized Method of Moments estimators. Using these...

Sunk costs of entry create a wedge between the real exchange rate for which a foreign exporter enters the domestic market, and that for which he exits. On the macroeconomic level, heterogeneous cost structures make the number of entry and exit thresholds approach a continuum: any movement of the...

We examine the link between the net foreign asset position, the trade balance and the real exchange rate. In particular, we decompose the impact of a country's net foreign asset position ('external wealth') on its long-run real exchange rate into two mechanisms: the relation between external...

We explore the role of financial openness - capital account openness and gross capital inflows - and a newly constructed gravity-based contagion index to assess the importance of these factors in the run-up to currency crises. Using a quarterly data set of 46 advanced and emerging market...

Empirical research on contagion between international stock markets generally focuses on market returns converted to US dollars, as this would be consistent with the perspective of an international investor. This note argues that such a conversion is inappropriate, since only returns denominated...

This paper re-examines empirical exchange rate puzzles by focusing on three OECD economies (Australia, Canada, and New Zealand) where primary commodities constitute a significant share of their exports. For Australia and New Zealand especially, we find that the U.S. dollar price of their...

We study price level convergence within the US and EMU, using panel estimates of regional Phillips curves of the hybrid New-Keynesian type. The estimated half lives of deviations from trend PPP are around three years for US regions and two years for euro area countries. The start of EMU had no...

This paper studies the impact of explicit deposit insurance on market discipline in a framework that resembles a natural experiment. We improve upon previous studies by exploiting a unique combination of country-specific circumstances, design features, and data availability that allows us to...

This paper examines the interaction of real exchange rates and current account movements in open economies subject to monopolistic competition with sticky price-setting behavior and distortionary taxes. We find that the correlations between fiscal balances and the current account depend on the...