In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with...

This paper surveys recent advances in the monetary transmission mechanism (MTM). In particular, while laying out the functioning of the separate channels in the MTM, special attention is paid to exploring possible interrelations between different channels through which they may amplify or...

Poland is obligated to adopt the euro after the fulfilment, inter alia, of the exchange rate criterion which requires entering the Exchange Rate Mechanism II (ERM II). The European Central Bank recommends that the ERM II central rate should reflect the best possible assessment of the equilibrium...

This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecasters' performance is skill-based. 'Superior' forecasters show...

The paper investigates the role of real exchange rate misalignment on long-run growth for a set of ninety countries using time series data from 1980 to 2004. We first estimate a panel data model (using fixed and random effects) for the real exchange rate, with different model specifications, in...

This study investigates exchange rate movements in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) and in the Exchange Rate Mechanism II (ERM-II). On the basis of the variant of the target zone model proposed by Bartolini and Prati (1999) and Bessec (2003), we set up a...

In this paper we propose an alternative explanation for the nature, sources and consequences of inflation rate differentials in a monetary union, such as EMU. To achieve this, we build on the new neoclassical synthesis (NNS) framework, recently advanced by Goodfriend (2002) and Goodfriend and...

This paper investigates the impact of the distribution sector on the real exchange rate, controlling for the Balassa-Samuelson effect, as well as other macro variables. Long-run coefficients are estimated using a panel dynamic OLS estimator. The main result is that an increase in the...

The main aim of this paper is to examine the exchange rate behavior of a group of four transitional, EU accession countries, with a view to making policy recommendations regarding their accession to full European Monetary Union. We employ a dynamic OLS panel estimator to investigate the relative...

The real exchange rate - real interest rate (RERI) relationship is central to most open economy macroeconomic models. However, empirical support for the relationship, especially when cointegrationbased methods are used, is rather weak. In this paper we reinvestigate the RERI relationship using...