In the empirical literature, not much support is found for the uncovered interest parity. Especially with free floating exchange rates, the forward rate is a biased predictor of the future exchange rate. This phenomenon can both be explained by an absence of rational expectations or by risk...

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...

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...

One of the major puzzles of the economic profession is the pricing of exchange rates. Despite the development of numerous theories, the actual behaviour of exchange rates, especially in the short run, is not well understood. This article evaluates several popular exchange rate theories and...

This paper tests for the transmission of the 2007-2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes. First, we find strong evidence of crisis transmission to European non-financials...

This paper analyses the reforms in the architecture of EMU since the eruption of the euro crisis in 2010. We describe major weaknesses in the original set-up of EMU, such as lack of fiscal discipline, diverging financial cycles and competitiveness positions, and a lack of crisis instruments....

This paper investigates the ability of the adaptive learning approach to replicate the expectations of professional forecasters. For a range of macroeconomic and financial variables, we compare constant and decreasing gain learning models to simple, yet powerful benchmark models. We find that...

Using an event study approach, we examine the impact of news about Greece and news about a Greek bailout on bank stock prices in 2010 using data for 48 banks included in the European stress tests. We identify the twenty days with extreme returns on Greek sovereign bonds and categorize the news...

We examine the relationship between credit ratings and bond yield spreads of peripheral countries in the euro area (Greece, Ireland, Italy, Portugal and Spain) for the period 1995-2014. Since 2012, bond spreads of those countries have come down very fast, whereas credit ratings have hardly...

This paper examines the extent to which large swings of sovereign yields in euro area countries during the sovereign debt crisis can be attributed to fundamentals. We focus on the inherent uncertainty in bond yield models, which is often overlooked in the literature. We show that the outcomes...