We use consumer price data for 205 cities/regions in 21 countries to study PPP deviations before, during and after the major currency crises of the 1990s. We combine data from industrialized nations in North America (Unites States, Canada and Mexico), Europe (Germany, Italy, Spain and Portugal),...

Stylized empirical facts about the correlation between the volume of international trade and exchange rate variability/uncertainty are at odds with the predictions of the simple open economy model. The present paper argues that this puzzle may be explained by drawing on the recent theoretical...

In exchange rate target zone models the commitment of policymakers to intervene at the boundaries of the band gives rise to speculation which stabilizes exchange rates within the band. The empirical implications of such stochastic process switching are discussed and their relevance for the...

Stylized empirical facts about the behaviour of exchange rates and interest rate differentials in real world target zone arrangements are at odds with the predictions of the simple (fully credible) target zone model. Incorporating time-varying devaluation risk in target zone models results in...