The paper studies exchange rate implications of trend inflation within a two-country New Keynesian (NK) model under incomplete international financial markets. A NK Phillips curve generalized by trend inflation with a positive long-run mean implies an expectational difference equation of...

We develop a novel system of re-classifying historical exchange rate regimes. One difference between our study and previous classification efforts is that we employ an extensive data base on market-determined parallel exchange rates. Our 'natural' classification algorithm leads to a stark...

This paper contributes to the debate on exchange rate elasticities by providing a set of price and quantity elasticities for 51 advanced and emerging market economies. Specifically, we report for each of these countries the elasticity of trade prices and trade quantities on the export and on the...

The key objective of this study is to investigate the return and volatility spillover effects among stock market, credit default swap (CDS) market and foreign exchange market for three countries: Korea, the US and Japan. Using the trivariate VAR BEKK GARCH (1,1) model, the study finds that there...

This paper examines the effect of overall and sector-specific productivity shocks on the real exchange rate in small open economies. A dynamic stochastic small open economy model shows that productivity shocks impact the real exchange rate mostly through changes in the relative price of...

We propose a theoretical framework of exchange rate behavior where investors focus on a subset of economic fundamentals. We find that any adjustment in the set of predictors used by investors leads to changes in the relation between the exchange rate and fundamentals. We test the validity of...

Commodity-exporting countries have persistently high real interest rates and currency excess returns. To explain this fact, I adapt a classic idea: labor cost disease, or the Balassa-Samuelson effect. Commodity booms raise wages in exporter countries, and thus make local goods and services less...

This paper uses event study analysis and synthetic control estimation analysis to explore how the trend of the risk premium changes when a country breaks its exchange rate peg. We perform abnormal return and cumulative abnormal return estimations on daily fluctuations of country spread index,...

The seminal study of Meese and Rogoff (1983) on exchange rate forecastability had a great impact on the international finance literature. The authors showed that exchange rate forecasts based on structural models are worse than a naive random walk. This result is known as the Meese-Rogoff (MR)...

This paper reviews from an international perspective the challenges faced by Cuba in unifying its exchange rate and compares various options to meet this objective. It argues in favor of a fast unification approach but cushioned during a pre-announced transition period by lump-sum taxes and...