Empirical confirmation that the effect of macroeconomic fundamentals on exchange rates is economically important has been scarce. This paper employs a general GARCH specification with asymmetric responses to investigate the effect of 35 U.S. and German macroeconomic news announcements on the...

I derive a dynamic version of the Dornbusch “overshooting” model in which real yields and inflation vary stochastically, and the exchange rate (FX) delivers UIRP in expectations. Tests using the model provide support for the UIRP proposition. Simulations show that the “disconnect” of FX...

We examine the in- and out-of-sample behavior of two popular trading systems, Alexander and Double MA filters, for fourteen developed-country currencies using daily data with bid-ask spreads. We find significant in-sample returns in the early periods. But out-of-sample returns are lower and only...