The paper extends and empirically tests the noise trader exchange rate model of Jeanne and Rose (2002). We introduce technical trading in the exchange market as a source of noise and explicitly incorporate monetary and exchange rate policy. With these modifications it is possible to directly...

The European Stability Mechanism (ESM) is the permanent crisis resolution mechanism for euro area countries. We analyze the costs of the current (suboptimal) refinancing design of the ESM and evaluate an alternative asset-backed securities (ABS) structure under different scenarios. Our...

In this article, an alternative eurobond approach is developed by applying an asset-backed security (ABS) transaction to a pool of eurozone sovereign bonds. Based on the new approach two different rules to distribute the associated interest gains are analyzed. Within the ABS structure a special...

While currency crises are typically considered to be painful and costly events, a closer look reveals that economic developments after a speculative attack differ considerably. Monetary authorities can play a central role in determining the economic course and costs of currency crises. They have...

Summary This paper develops a market-based procedure to significantly reduce the indebtedness of emerging markets by applying an asset-backed security approach to a pool of emerging market bonds. In an extensive simulation study based on historical data, the cumulated interest savings over a...

We show theoretically and empirically that twin currency and debt crises should be treated as a particular crisis type. Twin currency and debt crises differ from both pure currency and pure debt crises in their determinants, the course of the crises, and their economic consequences. We find that...

Regaining exchange rate stability has been a major monetary policy goal of East Asian countries in the aftermath of the 1997/98 currency crisis. While most countries have abstained from re-establishing a formal US Dollar peg, they have typically managed the US Dollar exchange rate de facto. We...

The microeconomic structure of foreign exchange markets can cause excessive volatility in flexible exchange rate regimes. The market entry of chartists changes the composition of the foreign exchange market and leads to excessive volatility. Our chartist model predicts a continuum of equilibria...