Adopting the exchange rate as a nominal anchor for monetary stabilization has proved costly in a number of countries as inflationary inertia produces severe real exchange rate appreciation. What causes inflation persistence? Complementary to existing explanation such as staggered contracts and...

This paper investigates the effects of exchange rate uncertainty on the volume and variability of trade flows. Employing a signal extraction framework, we show that the direction and magnitude of importers' and exporters' optimal trading activities depend upon the source of the uncertainty...

This Paper tests for uncovered interest parity (UIP) using daily data for twenty-three developing and developed countries through the crisis-strewn 1990s. We find that UIP works better on average in the 1990s than in previous eras in the sense that the slope coefficient from a regression of...

Both empirical evidence and theoretical discussion have long emphasized the impact of `news' on exchange rates. In most exchange rate models, the exchange rate acts as an asset price, and as such responds to news about future returns on assets. But the exchange rate also plays a role in...

If currency crises are triggered when the currency overvaluation hits a threshold, the expected magnitude of a devaluation, conditional on its occurrence, is substantially different from the unconditional expected currency overvaluation. That is not true if currency crises are triggered by...

A gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade. The panel data set used includes bilateral observations for five years spanning 1970 through 1990 for 186 countries. In this data set, there are over one hundred...

This Paper provides a quantitative investigation of the East Asian crisis of 1997-99. There are two essential features of the crisis that we focus on. These are: a) the crisis was a regional phenomenon; the depth and severity of the crisis was exacerbated by a large decline in regional demand;...

Stylized empirical facts on the behaviour of exchange rates and interest rate differentials in target zone arrangements are at odds with the predictions of the simple (fully credible) target zone model. Incorporating time-varying devaluation risk in target zone models enriches the...

A fixed exchange rate limits the ability of the real exchange rate to adjust to shocks, and tends to raise the volatility of real GDP. But adjustment may be enhanced if internal prices are more flexible under a fixed exchange rate. This Paper develops a model in which price setters incur a cost...