The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary effects, with flexible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal...

We study the behavior of real exchange rates in a two-country dynamic equilibrium model. In this model, consumers can only consume domestic goods but can invest costlessly in capital stocks of both countries. Nevertheless, transporting goods between the two countries is costly and, hence, the...

Using long-span data on the dollar-sterling and dollar-franc real exchange rates over the past two centuries, we apply the findings of various strands of the recent literature in order to examine the statistical and economic significance of the Harrod-Balassa-Samuelson effect (the effect of...

This paper examines the long-run validity of purchasing power parity (PPP) for fourteen developing countries. The period examined is 1973:4 through 2002:8. The methods of Elliot, Rothemberg and Stock (1996), Kwiattkowski et al. (1992) and Geweke and Porter-Hudak (1983) are employed to detect the...

Finding evidence of the theoretical relationship between exchange rate and inflation has been a difficult proposition in an exchange rate market, despite many studies in developed markets. Three recent papers employing a new research design, Theil’s Divisia index method, found that this...

In this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how...

Vector error-correction models (VECMs) have become increasingly popular in their applications to financial markets. Standard VECM models assume that the cointegrating vectors are of full rank such that they contain no zero elements. However, applications of VECM models to financial market data...

This paper provides a test of purchasing power parity (PPP) as an explanation for longterm foreign exchange rate movements. It essentially extends the analysis of Cheung and Lai (1993) to the South East Asian nations, Indonesia, the Philippines, Malaysia, South Korea, and Thailand. Consistent...