What can explain the persistent fluctuations observed in non-fixed exchange rates? We use a version of the Kareken-Wallace two-country overlapping generations model to explain this empirical phenomenon. The agents use an adaptive learning rule to forecast expected prices in both countries...

This paper explores the ability of portfolio and foreign direct investment flows to track movements in the euro and the yen against the dollar. Net portfolio flows from the euro area into U.S. stocks—possibly reflecting differences in expected productivity growth—track movements in the euro...