This paper presents a simultaneous model of exchange rates between the three major countries. In addition to incorporating long-run equilibria and short-run dynamics, the model is designed to capture complex interactions between currencies not normally considered in exchange rate models. These...

The purpose of the UDROP proposal is to prevent debt rollover crises for foreign-currency-denominated debt instruments. For such liabilities, there is no international analogue to the domestic lender of last resort or to domestic deposit insurance. UDROP stands for Universal Debt Rollover Option...

Using a portfolio balance model of exchange rate determination, this paper develops a theoretical explanation of why central banks do not make precise announcements of their exchange rate targets. In foreign exchange markets, where it is common knowledge that the central bank intervenes to...

The real exchange rate has been called the single most important price in an economy, yet its behaviour exhibits several puzzles. In this project, we use Big Mac prices as a unique prism to study the movement of real exchange rates. Part of our innovation is to match these prices to the prices...

The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutschmark, for the period March 1979 - May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by adjusting interest...

We use a spatial model of endogenous growth to investigate the likely impact of discriminatory integration among two advanced insider countries on their own welfare as well as on the welfare of an outsider transition economy. A first point is that, since convergence in per capita income levels...

There has been serious suspicion of a spurious rejection of the unit roots in panel studies of PPP due to the failure to control for cross-sectional dependence. This article presents evidence of mean-reversion in industrial country real exchange rates in a set up that accounts naturally for...

We model the joint risk neutral distribution of the euro-sterling and the dollar-sterling exchange rates using option-implied marginal distributions that are connected via a copula function that satisfies the triangular no-arbitrage condition. We then derive a univariate distribution for a...

The swiftness and devastating impact of recent financial crises have taken many market participants by surprise and pose challenges for economists seeking a theory of the onset of a crisis. We propose such a theory based on two features. The actions of diverse economic actors which undermine the...

Imperfect capital mobility is modelled in a two-country intertemporal general equilibrium framework by assuming that agents face costs of adjusting asset stocks in foreign asset markets. Goods markets are imperfectly competitive and goods prices are subject to sluggish adjustment. Simulation...