We lay out an empirical and a theoretical model to analyze the effects of non-fundamental exchange rate volatility on economic activity and welfare. In the first part of the paper, the GARCH-SVARmodel is applied to measure empirically the effect of the conditional exogenous exchange rate...

This paper analyses the impact of productivity developments in the United States and the euro area on the euro-dollar exchange rate. The paper presents a new measure of relative average labour productivity (ALP), which does not suffer from the biases implicit in readily available relative ALP...

This paper examines the long-run determinants of the euro-yen exchange rate. Using cointegration analysis, we find a consistent and significant relationship between the real exchange rate and relative productivity, the net foreign asset position, relative government spending and terms of trade...

This paper shows that there are two regularities in foreign exchange markets in advanced countries with flexible regimes. First, real exchange rates are mean-reverting, as implied by the Purchasing Power Parity model. Second, the adjustment takes place via nominal exchange rates. These features...

This paper decomposes the time-varying effect of exogenous exchange rate shocks on euro area countries in ation into country-specific (idiosyncratic) and region-wide (common) components. To do so, we propose a exible empirical framework based on dynamic factor models subject to drifting...

This paper presents evidence for structural differences in economic growth dynamics between the current EU and the central- and eastern European accession countries. Two important results emerge from the analysis. First, accession countries have posted higher average growth and wider output...

We derive fundamental new theory for measuring monetary service flows aggregated over countries within the European Monetary Union (EMU). We develop three increasingly restrictive approaches: (1) the heterogeneous agents approach, (2) the multilateral representative agent approach, and (3) the...

Standard economic models hold that exchange rates are influenced by fundamental variables such as relative money supplies, outputs, inflation rates and interest rates. Nonetheless, it has been well documented that such variables little help predict changes in floating exchange rates u0097 that...

Two seemingly unconnected empirical results suggest an intriguing mechanism. First, economic integration helps harmonize prices internationally, with trade being the primary channel (Rogoff 1996, Goldberg and Knetter 1997). Second, monetary union may greatly increase the amount of trade among...

The paper proposes a multi-factor international asset pricing model in which the exchange rate is allowed to be co-determined by a risk factor imperfectly correlated to other priced risks in the economy. The significance of this factor can be established as long as one is able to observe a proxy...