Despite major recent advance in the literature on financial crises, the key role of central banks in the dynamics of financial crises are still not well understood. Our aim is to contribute to a better understanding of the dynamics of financial crises by explicitly modeling the strategic options...

Restrictions on international capital transactions and other payments are usually designed to limit volatile short-term capital flows ( hot money ) and stabilize the exchange rate. Their imposition, however, may have the opposite effect by inadvertently signaling the continuation of...

This paper analyzes the implications of currency crises in a model with unique equilibrium. Starting from a typical multiple equilibria model with self-fulfilling expectations we introduce noisy information, following Morris/Shin (1999). Under certain conditions for the noise parameter, all...

This paper assesses several early warning (EWS) models of financial crises to propose a model that can predict the incidence of a currency crisis in developing countries. For this purpose, we employ the equal weighting (EW) and dynamic model averaging (DMA) approaches to combine forecast from...

I study the pricing of American Depositary Receipts around FOMC meetings to identify the impact of US monetary policy on managed exchange rates. ADR investors assess the domestic central bank’s reluctance to maintain a currency peg regime if the costs of mimicking policy rate increases in the...

Essentially, the impact of the currency union on member countries depends on whether the common currency area is optimal in the sense that the effect of the asymmetric shocks is small, Mundell (1961). Typically, researchers use VAR of different types to analyze the data. For robustness, we use...

Based on the theory of static replication of variance swaps we assess the sign and magnitude of variance risk premiums in foreign exchange markets. We find significantly negative risk premiums when realized variance is computed from intraday data with low frequency. As a likely consequence of...

This paper presents the results of a meta-regression analysis of empirical estimates of Renminbi misalignments. Seventeen articles and 130 observations dealing with empirical estimates of the misalignment of Chinese currency are collected. This meta-analysis shows that real exchange rate...

In this work, assuming as a model the Multifractional Processes with Random Exponent (MPRE), we propose a simulation algorithm able to replicate financial time series, specifically pertaining to the FX market. We show how, properly choosing the functional parameter of the MPRE, the simulated...

We propose a tractable model for the exchange rate in a target zone with realignment. The target zone exchange rate dynamics is assumed to obey a bounded regular diffusion with two-sided unattainable barriers. The realignment is modeled as a continuous-time two-state Markov chain. Under the...