We analyse how capital controls affect FX microstructure, using as a case study the introduction and subsequent removal of controls in Iceland. We use a VAR of private order flow, Central Bank order flow and EURISK that allows for contemporaneous feedback effects to analyse the impact and...

We discuss how to solve infinite-horizon optimal control problems with recursive preferences à la Hansen and Sargent (1995) when both backward and forward-looking variables enter into the law of motion regulating the system dynamics. With our analysis we establish: 1) under which conditions the...

Countries can repeatedly and opportunistically renegotiate the terms of agreements to which they can only complicitly assent. Therefore, when attempting to coordinate exchange rate policies, they continuously play partnership games. We develop a reduced form model of exchange rate management...

We propose a simple structural model of exchange rate determination which draws from the analytical framework recently proposed by Bacchetta and van Wincoop (2003) and allows us to disentangle the liquidity and information effects of order flow on exchange rates. We estimate this model employing...

We propose a simple structural model of exchange rate determination that draws from the analytical framework recently proposed by Bacchetta and van Wincoop (2003) and allows us to disentangle the liquidity and information effects of order flow on exchange rates. We estimate this model employing...

We propose a critical review of recent developments in exchange rate economics. This new strand of research is motivated by some very stark empirical evidence, relating exchange rate returns to order flow. Plenty of empirical evidence shows that order flow, i.e. the imbalance in the sequence of...

Recent research has highlighted the role that the government budget constraint plays in determining the consumer price level. According to the fiscal approach to price determination, prices adjust so that the discounted value of future real government primary surpluses equals the current real...