It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also...

We analyze the exchange rate forecasting performance under the assumption of selective attention. Although currency markets react to a variety of different information, we hypothesize that market participants process only a limited amount of information. Our analysis includes more than 100,000...

We analyze the exchange rate forecasting performance under the assumption of selective attention. Although currency markets react to a variety of different information, we hypothesize that market participants process only a limited amount of information. Our analysis includes more than 100,000...

This paper builds two factor discrete time models in order to investigate the effect of sovereign risk on the nominal exchange rates in a Markov switching framework. The empirical section of the paper uses seven currencies from Chile, the Czech Republic, Hungary, Iceland, Japan, Korea, and...

This paper presents unprecedented exchange rate forecasting results, based upon a new model that approximates the gap between the fundamental equilibrium exchange rate and the actual exchange rate with the long-maturity forward exchange rate. The theoretical derivation of our forecasting...