We investigate the effects of Central Bank interventions which are designed to smooth exchange rate volatility but are not aimed at a particular trend level. We present a model in which the intervention flow is a non-linear mapping of the market order flow. Simulations show that small daily...

This paper argues that order flow can explain exchange rate forecasting errors. A unified theoretical model is developed showing that forecasting errors can be explained by both informational rigidities and portfolio shifts. This is applied to Brazilian data using a unique data set of daily...

We obtain risk-neutral probabilities of the Brexit referendum using data from both the optionsand prediction markets. We then provide a risk-corrected measure of these probabilities usingboth non-parametric and parametric methods. While former correction marginally changes therisk-neutral...

The variance of real interest rate differentials (rids) is decomposed between ex post deviations from relative purchasing power parity and uncovered interest rate parity (UIRP) for a set of emerging markets from 1995M5 to 2004M3. The results point out to nominal interest rate differentials and...

We build a model that incorporates the effect of the innovative "flex" car, an automobile that is able to run with either gasoline or alcohol, on the dynamics of fuel prices in Brazil. Our model shows that differences regarding fuel prices will now depend on the proportions of alcohol, gasoline...

Contrary to the predictions of the theory underlying international finance, inflows of capital triggered by financial liberalisation have neither equalised real interest rates nor increased income growth in many emerging economies. We explain this puzzle by developing a model that combines the...

We formulated a general unrestricted model of the Brazilian Emerging Markets Bond Index Plus (EMBI+) spreads, a proxy for the country's default risk. Employing algorithms that perform automated model selection, we found that macroeconomic fundamentals, such as current account deficit ratio to...