Central banks with an exchange rate objective set the interest rate in response to what they call "pressure." Instead, existing interest rate rules rely on the exchange rate minus its target. To stay closer to actual policy, we introduce a rule that uses exchange market pressure (EMP), the...

If there is exchange market pressure (EMP), monetary authorities can use the interest rate and official interventions to offset this depreciation tendency, or they can let the exchange rate change. We introduce a new approach to derive how these three variables should be combined to measure EMP....

Exchange market pressure (EMP) measures the pressure on a currencyto depreciate. It adds to the actual depreciation a weightedcombination of policy instruments used to ward off depreciation,such as interest rates and foreign exchange interventions, where theweights are their effectiveness. The...

Exchange market pressure (EMP) measures the pressure on a currency to depreciate. It adds to the actual depreciation a weighted combination of policy instruments used to ward off depreciation, such as interest rates and foreign exchange interventions, where the weights are their effectiveness....

Can a wealth shift to emerging countries explain instability in developed countries? Investors exposed to political risk seek safety in countries with better property right protection. This induces private intermediaries to offer safety via inexpensive demandable debt, and increase lending into...

Here the author empirically estimates if the different monetary and exchange rate frameworks observed in the Accession Countries of Central and Eastern Europe and the Baltics do yield different outcomes in terms of level and variance of a set of nominal and real variables. The author follows and...

Can fixed exchange rate regimes cause output divergence among member states? We show that such divergence is a long-run equilibrium characteristic of a two-region model with fixed exchange rates, heterogeneous labor markets, and endogenous growth. Under flexible exchange rates, monetary policy...

Conventional wisdom teaches that the output response upon a fiscal expansion is higher under fixed than floating exchange rates for a small open economy. We analyse the effects of fiscal expansions using a New Keynesian model and find that this result reverses in times of sovereign default risk....