While virtually all currency crisismodels recognise that the fate of a currency peg depends onhow tenaciously policy makers defend it, they seldom model how this is done. We incorporatethemechanics of speculation and the interest rate defence against it in the model ofMorrisand Shin (American...

Microfoundations of the euro´s effect on euro area trade hinge on the timing, thespeed and the size of adjustment in trade costs. We estimate timing, speed and sizeof adjustment in trade costs for sectoral trade data. Our approach allows for sectorspecific impacts of trade costs on sectoral...

The remarkable stability of low domestic inflation in many countries requires explanation. In this paper, a number of competing hypotheses are evaluated on a stand-alone basis, and all are found to be inadequate. This includes the view that this outcome has been solely the result of more...

The existence of a self-regulating arbitrage mechanism under the gold standard has been tradi-tionally considered as one of its main advantages, and attracted a corresponding research interest.This research is arguably relevant not only to test for the effciency of the gold points, but also...

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.[...]

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...

Early warning systems (EWSs) are subject to restrictions that apply to exchangerates in general: fundamentals matter but their influence is small and unstable. Despitethis limitation four major lessons emerge: First, EWSs have robust forecastingpower and thus help policy-makers to prevent...

Explaining exchange rates has long been an important but vexing issue in international economics and finance. In recent years, a number of studies have shown that investors' private information plays a central role in determining exchange rates. We demonstrate in this paper that the private...

We examine the effects of the Czech National Bank communication, macroeconomic newsand interest rate differential on exchange rate volatility using generalized autoregressiveconditional heteroscedasticity model. Our results suggest that central bank communicationhas a calming effect on exchange...

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...