We propose a simple structural model of exchange rate determination which draws from the analytical framework recently proposed by Bacchetta and van Wincoop (2003) and allows us to disentangle the liquidity and information effects of order flow on exchange rates. We estimate this model employing...

We consider the impact of pessimism on monetary policy within a model with backward looking expectations and persistence in the dynamics of output and inflation. We show that pessimistic monetary authorities move their instruments to hedge against the worst economic shocks. With respect to their...