This paper examines the relationship between the conditional volatility of target zone exchange rates and realignments of the system. To investigate this question, modified jump diffusion Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and absolute value GARCH models are fit to...

This paper presents a general model of the determination of the interest rate and the exchange rate which is relevant for a small economy with any degree of capital mobility. The model is tested by using the quarterly data of Korea and Singapore. The emperical results show that in the Korean...

I analyze the role of real and monetary shocks on the exchange rate behavior using a structural vector autoregressive model of the US vis-à-vis the rest of the world. The shocks are identified using sign restrictions on the responses of the variables to orthogonal disturbances. These...

We examine the effects of endogenously determined realignment expectations in a model of a target zone with sluggish price adjustment. We allow these expectations to be based on a policy rule that generates an increasing probability of realignment as output moves away from full employment. We...

The impact of aggregate nominal and real shocks on the variance of relative prices is studied in the case of an open economy with fixed exchange rates where agents have limited information about aggregate shocks and the price level. In the first part of the paper it is shown that the limited...

During the 1980s, policy advisers were successful in promoting the view that movements in the value of the dollar have an inverse relationship to U.S. international competitiveness. This article explains their hypothesis, as well as the counterargument that exchange rates positively reflect a...

For many years after the seminal work of the Meese and Rogoff (1983a), conventional wisdom held that exchange rates could not be forecast from monetary fundamentals. Monetary models of exchange rate determination were generally unable to beat even a naive no-change model in out-of-sample...

With the advent of chain calculations for the U.S. national income and product accounts, it seems reasonable to contemplate using the chain approach for other indexes, such as trade-weighted exchange rates (TWEXs). A fundamental criticism of measuring the growth of gross domestic product by a...

Using self-exciting threshold autoregressive models, we explore the validity of the law of one price (LOOP) for sixteen sectors in nine European countries. We and strong evidence of nonlinear mean reversion in deviations from the LOOP and highlight the importance of modelling the real exchange...