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"We propose an exchange rate model which is a hybrid of the conventional specification with monetary fundamentals and the Evans-Lyons microstructure approach. It argues that the failure of the monetary model is principally due to private preference shocks which render the demand for money...
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Japan still suffers a deflationary hangover from the great episodic yen appreciations of the 1980s into the mid-1990s …. Money wages are still declining, and short-term interest rates remain trapped near zero. After Japan’s “lost decade” from … Europe and the United States have grown, and are growing, faster than in Japan. As the yen becomes weaker in real terms …
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We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of the net exports variable. In addition to bringing a new approach (utilizing our measure of external imbalance suggested by Gourinchas and Rey) and data spanning a more...
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