The absolute deterministic version of purchasing power parity (PPP), in which nominal exchange rates move precisely to offset changes in aggregate price levels between national economies, is not generally supported by empirical evidence. Testing PPP with standard regression models permits some...

This Mundell Fleming lecture at the International Monetary Fund’s 2001 annual research conference marks the 25th anniversary of Rudiger Dornbusch’s masterpiece, “Expectations and Exchange Rate Dynamics,” a seminal contribution to both policy and research in the field of international...

This Selected Issues paper reviews indicators for external competitiveness in Hungary. The paper examines recent developments in a range of indicators. These include regional comparisons of wage and unit labor cost developments, and standard indicators based on price and cost-based measures of...

This paper explores the phenomenon of lasting deviations of the exchange rate from its fundamental value in the foreign exchange market. Motivated by empirical observations a chartists-fundamentalists model is developed in which boundedly rational agents repeatedly choose between technical and...

The aim of this paper is to explain the phenomenon of distortions in the foreign exchange market. Distortions in the sense of (lasting) deviations of the exchange rate from its fundamental value are a sign of market inefficiency. One well known example for such a phenomenon is the bubble path of...

The IMF's internal analysis of exchange rate issues has been guided by, and limited by, the conceptual and empirical frameworks that have emerged from the collective research of the economics profession. The research has provided several general approaches that are useful for assessing whether...

This paper analyzes competitiveness in the Baltics in the run-up to European Union accession. Several factors appear to have driven movements in equilibrium real exchange rates in the Baltics since the start of the transition process. In the earlier years of transition, price liberalization,...