This paper brings together the literature on determination of home bias in equity holdings and the portfolio balance model of exchange rates to consider whether the dollar might be affected by a change in transactions costs that alters international portfolio allocations. The empirical findings...

Capital controls lower the variability of the exchange rate and reduce the risk premium as well as the domestic interest rate. On the other hand, capital controls reduce the number of noise traders and, therefore, the risk-bearing capacity of the market, leading to higher interest rates and a...

We analyze the effectiveness of the foreign exchange market interventions conducted by the European Central Bank (ECB) in the fall of 2000 to support the external stability of the euro. To this end, in a first step different channels through which interventions may influence exchange rate...

The article provides estimates of short-run and medium-run exchange rate pass-through into domestic prices in Russia during the period of 2000–2012 using vector error correction model. Exchange rate pass-through asymmetry estimates, its assessments on different sub-periods and exchange rate...

This paper studies the behavior of inflation after nine large post-1990 contractionary devaluations. A salient feature of the data is that inflation is low relative to the rate of devaluation. We argue that distribution costs and substitution away from imports to lower quality local goods can...

The paper builds a two-country open economy model of incomplete exchange rate pass-through. The paper contributes to the existing literature in two ways. First, incomplete pass-through is the result of price discrimination, and not any assumption about price rigidities. The flexible-price model...

This paper studies Ramsey-optimal monetary and fiscal policy in a New Keynesian 2-country open economy framework, which is used to assess how far fiscal policy can substitute for the role of nominal exchange rates within a monetary union. Giving up exchange rate flexibility leads to welfare...

Rational expectations models fail to explain the disconnect between the exchange rate and macroeconomic fundamentals. In line with survey evidence on the behaviour of foreign exchange traders, we introduce model misspecification and learning into a standard monetary model. Agents use simple...

By building a theoretical model and taking it to the data with two novel datasets, this paper analyses the interaction between credit constraints and exporting behaviour. Building a heterogeneous firms model of international trade with liquidity-constrained firms yields several predictions on...

In exchange rate target zone models the commitment of policymakers to intervene at the boundaries of the band gives rise to speculation which stabilizes exchange rates within the band. The empirical implications of such stochastic process switching are discussed and their relevance for the...