Maximum likelihood estimation of discretely observed diffusion processes is mostly hampered by the lack of a closed form solution of the transient density. It has recently been argued that a most generic remedy to this problem is the numerical solution of the pertinent Fokker-Planck (FP) or...

This paper uses a 'new open economy macroeconomics' model to study the effect of a productivity shock on exchange rate dynamics. The special features of the model are that households' preferences exhibit a 'catching up with the Joneses' effect and that international financial markets are...

A shortcoming of most empirical studies on aggregate exports is their exclusive focus on the demand side. Moreover, the effect of globalization is often neglected leading to implausibly high income elasticities. This paper models export demand and supply simultaneously and incorporates a new...

Results of empirical research have revealed a characteristic hump-shaped effect of monetary policy shocks on output: the effect builds to a peak after several months and then gradually dies out. We analyze, in the context of a "new open economy macroeconomics" model, factors that imply a hump-...

This paper uses a dynamic general equilibrium optimizing two-country model to analyze how the formation of exchange rate expectations shapes the effects of monetary policy shocks in open economies. The model implies that the short-run output effects of permanent monetary policy shocks diminish...

A number of empirical studies have reported the result that exchange rates show a delayed overshooting in response to monetary policy shocks. This result is puzzling. Economic theory suggests that the overshooting should occur immediately after the shock, not with a delay. This paper uses a ?new...

During the last two decades, the degree of openness of national financial systems has increased substantially. At the same time, asymmetries in information and other financial market frictions have remain prevalent. We study both empirically and theoretically the implications of the opening up...

A contingent claims valuation model which allows to highlight the implications of program trading in spot markets for the pricing of European-style foreign currency options and for the volatility strike structure implicit in these contracts is devoloped. The curvature of the volatility strike...

The effectiveness of the foreign exchange market interventions conducted by the Deutsche Bundesbank during the Louvre period to alter either the level or the volatility of the $/DM spot rate is examined. Volatility quotes implicit in foreign currency options are employed to recover the impact of...

We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs costs mostly in euros. We construct and calibrate a simulation model to...