In this paper we present a critical overview of differnt methods of constructing an equilibrium exchange rate. The recent literature on purchasing power parity (PPP) indicates that on its own PPP is not a good vehicle for defining an equilibrium exchange rate. Rather, we argue that the latter...

This paper surveys a wide body of economic literature on the relationship between currencies and trade. Specifically, two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average, exchange rate volatility has a negative...

This paper surveys a wide body of economic literature on the relationship between currencies and trade. Specifically, two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average, exchange rate volatility has a negative...

The aim of this paper is to examine the theoretical and empirical arguments for the relationship between the exchange-rate regime and economic growth. As a nominal variable, the exchange rate (regime) might not affect the long-run economic growth. However, there is no unambiguous theoretical...

The New Keynesian Phillips Curve has become an inherent part of modern monetary policy models. It is derived from micro-founded models with rational expectations, sticky prices, and forward and backward-looking subjects on the market. Having reviewed about 200 studies, we analyze the weight of...

Market risk management is one of the key factors to success in managing financial institutions. Underestimated risk can have desastrous consequences for individual companies and even whole economies, not least as could be seen during the recent crises. Overestimated risk, on the other side, may...

The globalization of capital and product markets has many implications for economic welfare. Countries can specialize in the production of goods for which they have comparative advantages, and capital is allocated more efficiently. However, one potentially adverse effect of globalization is the...

This paper defines “interdependence” as high correlations across markets during all states of the world and “contagion” as the spillovers from extreme negative events. Interdependence has increased dramatically over time, especially within the euro area, even after controlling for global...

A healthy financial system encourages the efficient allocation of capital and risk. The collapse of the house price bubble led to the financial crisis that started in 2007. There is a large empirical literature concerning the relation between asset price bubbles and financial crises. I evaluate...