The proposition that real rates are equal across countries is worth studying because it is central to our understanding of open economy macroeconomics and because it is also an important issue to policy makers. If it is true, then domestic monetary authorities have no control over their real...

A sticky-price model is used to motivate a structural VAR analysis of the current account and the real exchange rate for seven major industrialized countries (the US, Canada, the UK, Japan, Germany, France and Italy). The analysis is distinguished from previous work in that it adopts minimal...

This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds...

Many past studies of relative financing costs in the United States and Japan have relied on interest rates from the 1970s and earlier when Japanese financial markets were subject to numerous regulations and controls and were shielded by capital controls from financial markets abroad. Interest...

Different approaches to quantifying the degree of capital mobility for a cross-section of currencies -- particularly saving-investment correlations and tests of real interest parity - have appeared to show a surprisingly low degree of financial market integration. We use a new data set, forward...

We evaluate the recent evidence for real interest parity, focusing on long-term yields. Examining the data on financial instruments of various maturities across the G7 countries, we find substantial differences in the degree of real interest equalization measured at different horizons. In...

Two explanations are given for why nominal or real returns differ across currencies: foreign exchange risk premia and systematic (rational) forecast errors. This study reexamines three parity conditions in international finance, uncovered interest parity, purchasing power parity, and real...

The linkages between the People's Republic of China (PRC) and the other Chinese economies of Hong Kong and Taiwan are assessed, and compared against those with Japan and the US. We first characterize the time series behavior of variables corresponding to three criteria of integration, namely...

Under uncovered interest parity (UIP), the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials is invariant to the horizon at which the change is expected. Empirical evidence using US, euro area and UK data points to a substantial deviation...

We propose a dynamic general equilibrium model of exchange rate determination, which simultaneously accounts for all major puzzles associated with nominal and real exchange rates. This includes the Meese-Rogoff disconnect puzzle, the PPP puzzle, the terms-of-trade puzzle, the Backus- Smith...