We offer a critical review of recent developments in the study of foreign exchange intervention. In particular, we discuss some unresolved issues, such as the secrecy puzzle, the relevance of the signalling and portfolio-balance effect hypotheses, the identification of the impact of foreign...

Since the introduction of the autoregressive conditional heteroskedastic (ARCH) model in Engle (1982), numerous applications of this modeling strategy have already appeared. A common finding in many of these studies with high frequency financial or monetary data concerns the presence of an...

This paper summarizes the methods and types of indicators that are often employed, both insid and outside the IMF, to assess whether exchange rates are broadly in line with economic fundamentals.

We develop a stochastic, general equilibrium, two-country model of trade and macroeconomic dynamics. Productivity differs across individual, monopolistically competitive firms in each country. Firms face a sunk entry cost in the domestic market and both fixed and per-unit export costs. Only...

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...

Exchange rate reforms in developing countries have often aimed at floating the exchange rate in an attempt to unify the official and parallel markets for foreign exchange. This paper examines the anticipatory dynamics associated with such reforms. The analysis shows that if the future unified...

Relative GDP shares are frequently used as weights in aggregations. In order to ensure that these weights reflect countries’ shares in real output, GDP data in national currencies should be converted into a common numeraire currency at purchasing power parity (PPP) rates. A review of the...

This paper studies the implications of the imperfect credibility of an exchange rate target zone on the term structure of forward premia. The relationship between spot and forward exchange rates of different maturities reflects the possibility of repeated realignments of the exchange rate band....

In this paper we introduce a flexible target zone model that is capable of characterizing the dynamic behaviour of an exchange rate implied by the original target zone model of Krugman (1991) and its modifications. Our framework also enables the modeller to estimate an implicit target zone if it...