The aim of this paper is to develop a continuous time exchange rate model that allows for heterogeneity of the agents' beliefs, in order to explore non-linearities and possible chaotic behaviour. The theoretical model contains an intrinsic non-linearity that gives rise to a jerk differential...

This paper is a step in the direction of a larger research project aimed at determining the long run equilibrium value of the euro/dollar real exchange rate. Given this value, one could then give a precise meaning to the notion of undervaluation or overvaluation of the euro, and calculate its...

This paper presents a theoretical framework analysing the signalling channel of exchange rate interventions as an informational trigger. We develop an implicit target zone framework with learning in order to model the signalling channel. The theoretical premise of the model is that interventions...

In this paper we investigate the effects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a...

Contrary to most existing studies of the literature that assumed that the effects of real exchange rate (RE) misalignment on trade flows are symmetric, this paper considers a more general and realistic framework allowing for possible asymmetric effects. We use monthly time-series data over the...

We test a simple model of exchange rate regime choice with data for 65 non-OECD countries covering the period 1980-94.We find that the variance of output at home and in potential target c ountries as well as the correlation between home and foreign real activity are powerful and robust...

The problem is to evaluate the likelihood that a country will face a currency or balance of payments crisis over a given horizon. When is it rational for market participants to expect a depreciation of the currency? On the basis of considerable empirical studies we know that in both banking and...

Under fixed exchange rates, fiscal policy is an effective tool. According to classical views because it impacts the real exchange rate, according to Keynesian views because it impacts output. Both views have merit because the effects of government spending are asymmetric. A spending cut lowers...