Japan’s long-lasting current account surplus as well as Germany’s temporary surplus during the 1980s are the two largest current account surpluses the world has witnessed. Remarkably, net exports were rising in both countries despite the large overall appreciation of the Japanese yen and the...

The balance of payments is an accounting identity. Many wonder how the current and capital accounts, which add up to zero, can influence exchange rates. This paper shows how payment flows arising from balance of payments imbalances affect the demands for different currencies in the foreign...

Several countries in eastern Europe may accede to the European Union in about two years time, making them candidates to join Europe¿s single currency from 2006. Some well-known economists have advocated that countries in eastern Europe adopt the euro now either unilaterally or by prior...

Several countries in eastern Europe may accede to the European Union in about two years time, making them candidates to join Europe's single currency from 2006. Some well-known economists have advocated that countries in eastern Europe adopt the euro now either unilaterally or by prior...

Monetary models of exchange rates tend to focus on inflation differentials to explain exchange rate movements. This paper assesses the ability of currency flows to predict exchange rate changes. The focus is on Japan. Currency flows are assumed to depend on the level of the current account and...

The yen has experienced several big swings over recent decades. This paper argues that the fluctuations of the Japanese exchange rate resulted mainly from corresponding movements in the current account, which affected the demand for yen relative to other currencies. The paper builds a vector...

When the current account balance and net capital outflows do not exactly offset each other, net payment flows arise. Payment inflows into a country push the real exchange rate up, outflows push it down. This paper uses a model of optimal consumption and portfolio choice to determine the factors...

During the past three decades, Japan’s current account experienced five large swings. The yen appreciated considerably in periods when the current account boomed, and it depreciated whenever Japan’s external performance weakened. However, there has always been a certain lag in the adjustment...

The paper attempts to identify an empirical relationship that characterizes the way the Bundesbank adjusted its short-term rate with respect to various objectives. By building on a careful exploration of the properties of the variables involved, it is established that interest rate rules --often...

Despite the great importance and final success of the convergence process that led to the establishment of the European Monetary Union, there is no clear agreement regarding the monetary policy pursued in the member countries during the convergence process. This paper contributes to the...