In this paper, we provide capital flow forecasts to 32 developing countries using a vector error correction framework based on underlying domestic (pull) fundamentals and international (push) factors. In general, pull factors have a heavier weight in determining these capital flows. However,...

A large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate. There is evidence, however, that the term structure of forward premia contains valuable information for forecasting...

Liquidity constraints can affect self-employment in a number of ways. They can prohibit potential entrepreneurs from starting up in business, they can restrict the growth of existing entrepreneurial activities and, in the extreme, they can result in small business failure. This paper uses...

I examine the effectiveness of exchange rate intervention within the context of a Markov-switching model for the real exchange rate. The probability of switching between stable and unstable regimes depends non-linearly upon the amount of intervention, the degree of misalignment and the duration...

The covered interest parity (CIP) theorem states that the covered interest differential between two similar assets denominated in different currencies should be zero. This paper utilizes high-quality data recorded by the dealers at the Bank of England to test CIP during periods in which news is...

Tests for long-run purchasing power parity (PPP) may lack power with sample periods corresponding to the span of the recent float, leading researchers to use more powerful multivariate unit root tests. We point out a potential problem with such tests: joint non-stationarity of real exchange...

We pursue the idea that a region presents a common ‘prospectus’ to investors and lenders. Specifically, we explore whether investors respond to regional developments, rather than to country-specific fundamentals. Such behaviour may be appropriate where regions are identified by common...

We examine the determinants of capital flows to four developing countries during the 1990s using an explicitly disequilibrium econometric framework in which the supply and demand for capital are not necessarily equal, and the actual amount of the flow is determined by the ‘short side’ of the...

We analyse the importance of ERM membership for macroeconomic performance by comparing the behaviour of real output growth and inflation of members and non-members of the ERM. Taking the traditional aggregate supply and demand model as the basis for the analysis, we propose and implement an...

Several theoretical models of money demand imply non-linear functional forms for the aggregate demand for money characterized by smooth adjustment towards long-run equilibrium. In this Paper, we propose a non-linear equilibrium correction model of US money demand, which is shown to be stable...