Using recently developed model selection procedures, we determine that exchange rate returns are driven by a two-factor model. We identify them as a dollar factor and a euro factor. Exchange rates are thus driven by global, US, and Euro-zone stochastic discount factors. The identified factors...

We construct factors from a cross section of exchange rates and use the idiosyncratic deviations from the factors to forecast. In a stylized data generating process, we show that such forecasts can be effective even if there is essentially no serial correlation in the univariate exchange rate...

We study the long-run relationship between nominal exchange rates and monetary fundamentals in a quarterly panel of 18 countries extending from 1973.1 to 1997.1. Our analysis is centered on two issues. First, we test whether exchange rates are cointegrated with long-run determinants predicted by...

We study the dynamics of price indices for major U.S. cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate. In a panel of 19 cities from 1918 to 1995, we estimate the half-life of convergence to be approximately nine...

This paper analyzes the economic determinants of developing country creditworthiness indicators for over 60 developing countries for the period from 1980 to 1993. Our results indicate that economic fundamentals--the ratio of non-gold foreign exchange reserves to imports, the ratio of the current...

Local asymptotic power advantages are available for testing the null hypothesis that the slope coefficient is zero in regressions of y(t+k)-y(t) on x(t) for k 1 where the x(t) and the change in y(t) are I(0) series. The advantages of these long-horizon regression tests accrue in a linear...

We use local projections to estimate the cross-country distribution of real GDP per capita growth impulse responses to global and idiosyncratic temperature shocks. Negative growth responses to global temperature at longer horizons are found for all Group of Seven countries while positive...

We use local projections to estimate the cross-country distribution of real GDP per capita growth impulse responses to global and idiosyncratic temperature shocks. Negative growth responses to global temperature at longer horizons are found for all Group of Seven countries while positive...

The within-group estimator (same as the least squares dummy variable estimator) of the dominant root in dynamic panel regression is known to be biased downwards. This paper studies recursive mean adjustment (RMA) as a strategy to reduce this bias for AR(p) processes that may exhibit...

Can standard business-cycle methodology be applied to China? In this chapter, we address this question by examining the macroeconomic time series and identifying dimensions in which China differs from economies (such as Canada and the U.S.) that are typically the subject of business-cycle...