This paper uncovers a striking empirical regularity: the consumer price of a good relative to a different good within a country tends to be much less variable than the price of that good relative to a similar good in another country. This fact seems to hold for all goods except very simple,...

A Markov-switching model is fit for eighteen exchange rates at quarterly and monthly frequencies. This model fits well in-sample at the quarterly frequency for many exchange rates. By the mean-squared-error or mean-absolute-error criterion. the Markov model does not generate superior forecasts...

This paper surveys recent theoretical and empirical contributions on foreign exchange rate determination. The paper first considers monetary models under uncovered interest parity and rational expectations. Then the paper considers deviations from UIP/rational expectations: foreign exchange risk...