Evidence on the effectiveness of FX interventions in the prevailing higher frequency approaches leaves a gap at horizons going beyond a few days. This is addressed by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Using Japanese data, we...

The study presents an empirical strategy for determining global currency bloc equilibria. The procedure includes, first, a nested logit estimation of the combined determinants of currency regime and anchor currency choice; second, a test for a welfare-maximising regime decision, in which estimates...

This paper considers how an investor in foreign exchange markets might exploit predictive information in macroeconomic fundamentals by allowing for switching between multivariate time series regression models. These models are chosen to reflect a wide array of established empirical and...

Since the demise of the Bretton Woods, the yen has seen several episodes of strong appreciation, including in the late 1970s, after the 1985 Plaza Agreement, the early and late 1990s and after 2008. These appreciations have not only been associated with “expensive yen recessions” resulting...

Sluggish adjustment of expectations to new information is rational in an environment characterized by information costs and signal-to-noise problems. This paper investigates the role of such information rigidities for exchange rate expectations using data from Consensus Economics for eight...

This paper provides a new perspective on the exchange rate disconnect puzzle by referring to the expectations building mechanism in foreign exchange markets. Therefore, we analyze the role of expectations regarding macroeconomic fundamentals for expected exchange rate changes. In doing so, we...

This paper analyses currency options for six Pacific states - Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu - that issue their own currencies. Empirical estimates indicate that these states already stabilize their currencies against the US dollar because of their large and...

Bun and Klaassen (2007) investigate the impact of the introduction of Euro on bilateral trade. Accounting for deterministic trends in the residuals of the gravity equation they estimate an Euro effect of about 3%, smaller than previous estimates in the range of 5% to 40%. In this paper we...

In 1976 Vaubel suggested using the variation of real exchange rates when evaluating the desirability of a monetary union within a group of currencies (Vaubel 1976). Currency uni cation is less desirable, the more often real exchange rate adjustments are needed. Ten years later, Mussa...

Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Keeping this in mind, five lessons emerge : First, EWSs have robust forecasting power and thus help policy-makers to prevent crises....