Empirical evidence suggests that a monetary shock induces the exchange rate to overshoot its long-run level. The estimated magnitude and timing of the overshooting, however, varies across studies. This paper generates delayed overshooting in a new Keynesian model of a small open economy by...

Empirical evidence suggests that a monetary shock induces the exchange rate to overshoot its long-run level. The estimated magnitude and timing of the overshooting, however, varies across studies. This paper generates delayed overshooting in a new Keynesian model of a small open economy by...

This paper presents some models of exchange rate with jumps, namely jump diffusion exchange rate models. Jump diffusion models are quite common in computational and theoretical finance. It is known that exchange rates sometimes exhibit jumps during some time periods. Therefore, it is important...

This paper revisits the Kareken-Wallace model of exchange rate formation in a two-country overlapping generations world. Following the seminal paper by Arifovic (Journal of Political Economy, 104, 1996, 510-541) we investigate a dynamic version of the model in which agents' decision rules are...

This paper revisits the Kareken-Wallace model of exchange rate formation in a two-country overlapping generations world. Following the seminal paper by Arifovic (Journal of Political Economy, 104, 1996, 510 – 541) we investigate a dynamic version of the model in which agents? decision rules...

The volatility of interest rates is relevant for many financial applications. Under realistic assumptions the term structure of interest rate differentials provides an important prediction of the term structure of interest rates. This paper derives the term structure of differentials in a...

The process of international interest rate convergence for arbitrary terms (represented by the term structure of interest rate differentials) is derived in a model of a small open economy which faces a purely time-contingent exchange rate regime switch from flexible to fixed rates. Special...