Our goal in this project is to gain a better empirical understanding of the internationalfinancial implications of currency movements. To this end, we construct a databaseof international currency exposures for a large panel of countries over 1990-2004.We show that trade-weighted exchange rate...

China’s emergence as a major player in world trade is well known, but its rising role in global finance is perhaps underappreciated. China is the second largest creditor in the world today, with a net creditor position of exceeding 30% of GDP in 2007. In this paper, we test the importance of...

This paper shows that properly designed interest rate rules can be consistent withmaintaining exchange rate stability. It sheds light on the relation between interest rate rules,exchange rate regimes, and determinacy of the rational expectation equilibrium in a modernmacroeconomic framework.[...]

China’s financial conundrum arises from two sources: (1) its large trade (saving) surplusresults in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead foreign currency claims (largely dollars) build up within domestic financialinstitutions. And...

This paper demonstrates effects of economic convergence processes on the foreign exchange behaviour in a monetary modelling approach. Since the exchange rate represents the relative price of two currencies, commonness of stochastic trends between the fundamental determinants of supply and demand...

This paper presents a behavioral finance model of the exchange rate. Agents forecast theexchange rate by means of very simple rules. They can choose between three groups offorecasting rules: fundamentalist, extrapolative and momentum rules. Agents using afundamentalist rule are not able to...

Past empirical research on monetary policy in open economies has found evidence of the ’delayed overshooting’, the ’forward discount’ and the ’exchange rate’ puzzles. We revisit the effects of monetary policy on exchange rates by applying Uhlig’s (2005) identification procedure that...

A core stylized fact of the empirical exchange rate literature is that half-life deviationsof equilibrium real exchange rates from levels implied by Purchasing Power Parity(PPP) are very persistent. Empirical efforts to explain this persistence typicallyproceed along two distinct paths,...

There is a broad consensus that the quality of the political system and its institutionsare fundamental for a country’s prosperity. The paper focuses on political events inItaly over the past 35 years and asks whether the adoption of the euro in 1999 hashelped insulate Italy’s financial...

A striking and unexpected feature of the financial crisis has been the sharpappreciation of the US dollar against virtually all currencies globally. The paper findsthat negative US-specific macroeconomic shocks during the crisis have triggered asignificant strengthening of the US dollar, rather...