We make a case for the usefulness of an optimal control approach for the central banks’ choice of interest rates in inflation target regimes. We illustrate with data from selected developed and emerging countries with longest experience of inflation targeting.

Employing both cointegration analysis and a variety of Granger causality tests, we examine whether the Brazilian stockmarket is efficient in processing new information about public macroeconomic data (semi-strong efficiency). We find the stockmarket to be inefficient, which is in line with most...

We assess the biological basis of expected utility anomalies through an experiment of the Allais paradox. A questionnaire study of 120 subjects replicates the anomalies and further gathers information about the respondents’ bio-characteristics, such as gender, age, parenthood, handedness,...

This paper puts forward a technique based on the characteristic function to tackle the problem of the sum of stochastic variables. We consider independent processes whose reduced variables are identically distributed, including those that violate the conditions for the central limit theorem to...

We examine the relationship between the US current account deficit, the international value of the dollar, and the dollar reserves of foreign central banks. We find that the international value of the dollar impacts the US current account and also that dollar depreciations are accompanied by...

Financial economists usually assess market efficiency in absolute terms. This is to be viewed as a shortcoming. One way of dealing with the relative efficiency of markets is to resort to the efficiency interpretation provided by algorithmic complexity theory. We employ such an approach in order...

We examine Latin American foreign exchange intervention in a framework where the exchange rate regime is endogenous and there exists an inefficient, equilibrium foreign exchange intervention bias. The model suggests that greater central bank independence is associated with lesser intervention in...

We find that generalized purchasing power parity does not hold for Mercosur, and thus that the South American trade group does not constitute an optimum currency area. We also find that the role of the United States cannot be neglected in the region, and that high short run volatility of real...

We employ the Levy sections theorem in the analysis of selected dollar exchange rate time series. The theorem is an extension of the classical central limit theorem and offers an alternative to the most usual analysis of the sum variable. We find that the presence of fat tails can be related to...

In the literature of staggered wages (Taylor, 1979, 1980; Blanchard, 1986; Ball and Cecchetti, 1991) the discount factor is neglected in the workers’ loss function. Yet discounting is to be viewed as an extra piece of micro-foundation with implications for discretionary monetary policy. We revisit the...