Government surplus forecasts comove strongly with nominal and real exchange rates. They are the best explanatory variable of exchange rate movements at semi-annual frequency in my post-2008 sample. In comparison, the comovement between government surplus forecasts and price level movements is...

This paper addresses exchange rate determination under a nominal interest peg in a two-country cash-in-advance model. Under two types of cash-in-advance constraints, if both governments peg the nominal interest rate on domestic bonds, there is a continuum of equilibria, each consistent with...