We develop a simple formal framework to clarify the trade-offs involved in the choice between a fixed and flexible exchange-rate system. We then apply the framework to the CFA Zone countries in Africa, which have maintained a fixed parity with the French franc since independence. The...

Two issues are discussed. The first is which countries might benefit from entry into EMU before the millennium. Germany and her immediate neighbours appear the most likely to gain; our knowledge is too uncertain to say whether all, some, or no countries would reap net economic benefits, however....

The decline of the euro against the dollar during 1999-2000 was mostly unrelated to observable news about the underlying fundamentals. This corroborates a general finding from the empirical literature testing the traditional exchange rate models, i.e. that exchange rate movements are...

This paper provides a comprehensive evaluation of the short-horizon predictive ability of economic fundamentals and forward premia on monthly exchange rate returns in a framework that allows for volatility timing. We implement Bayesian methods for estimation and ranking of a set of empirical...

The paper empirically analyzes asymmetries in the EMS with special reference to their implication for the creation of a monetary union (EMU). Two types of asymmetries are analyzed: those in the form of "German dominance" are detected in the conduct of monetary policies in the EMS, in particular...

The renewed quest for a European monetary union raises the question: Is Europe ready for a common currency? We compare the variability and persistence of real exchange rate fluctuations within the German monetary union and between Germany and eight European countries to assess the viability of a...

This paper provides empirical evidence on the effectiveness of movements in nominal exchange rates in smoothing cyclical imbalances between countries, as explained by the literature on optimal currency areas. We use restrictions from the Mundell-Flemming model (on which the theory of optimal...

In this paper it is shown that relatively simple models are capable of generating exchange rate movements that, at least in the short run, are largely disconnected from their fundamental values. The essential ingredient of such models is the hypothesis that economic agents use different...

In this paper we analyze the behavior of the risk premia in exchange markets with very different exchange rate regimes: free floating (dollar markets), the low credibility EMS regime (e.g., Lira/DM and FF/DM) and the high credibility EMS regime (guilder/DM). We find that in the first and the...

Floating exchange rates display substantial short-run volatility causing a nontrivial information problem in disentangling temporary from permanent changes. Although agents observe current market signals they are imperfectly informed about the future, but they accumulate information and learn...