Commercial and financial transactions between countries induce payment flows, which influence exchange rates. Exchange rates tend to follow the movements of the current account with a lag. The adjustment delay occurs as countries finance balance of payments deficits by borrowing from abroad....

In July 1997, the economies of East Asia became embroiled in one of the worst financial crises of the postwar period. Yet, prior to the crisis, these economies were seen as models of economic growth experiencing sustained growth rates that exceeded those earlier thought unattainable. Why did the...

After the 1980s, capital flows have accelerated in the less developed countries and since Salter's seminal paper in 1959, it has been widely accepted that the real exchange rate respond to capital flows. Based on a simple model derived by Sjaastad and Manzur (1996) along the lines of Salter...

Meese and Rogoff (1983) and subsequent studies find that economic fundamentals are apparently not able to explain exchange rate movements, but we argue that this so-called "Exchange Rate Disconnect Puzzle" arose because researchers such as Meese and Rogoff (1983) did not use the right...

This article shows that global financial markets cannot, by themselves, achieve net transfers of financial capital and real interest rate equalisation across countries and that the integration of both global financial markets and global goods markets is needed to achieve net transfers of capital...

This paper explains what is meant by the concept of equilibrium exchange rates. It argues that a variety of equilibrium exchange rates can be defined and their behaviour will vary according to different definitions of the exchange rate, and over short, medium and long-term horizons. It...

New EU members share two very marked features which have conflicting implications for the evolution of their real exchange rates in the long run: accelerated growth and systematic current account imbalances, which would anticipate, respectively an appreciation and a depreciation of their...

This article shows that global financial markets cannot, by themselves, achieve net transfers of financial capital and real interest rate equalisation across countries and that the integration of both global financial markets and global goods markets is needed to achieve net transfers of capital...

This paper investigates the factors behind the significant improvement in Brazil's external accounts and wide fluctuations of the real exchange rate since the floating of the real in 1999. Particular attention is devoted to the strong appreciation of the real from 2003-05. Econometric estimates...

Devaluation is an integral part of adjustment in many developing countries, particularly relied upon by countries facing large external imbalances. A devaluation can only reduce trade imbalances if it translates to a real devaluation and if trade flows respond to relative prices in a significant...