According to the most common understanding, currency crises are always and everywhere a monetary phenomenon. Based on a formal theoretical model and ample empirical evidence, this article argues instead that currency crises are always and everywhere about external imbalances. They are usually...

The balance of payments is an accounting identity. Many wonder how the current and capital accounts, which add up to zero, can influence exchange rates. This paper shows how payment flows arising from balance of payments imbalances affect the demands for different currencies in the foreign...

The paper attempts to identify an empirical relationship that characterizes the way the Bundesbank adjusted its short-term rate with respect to various objectives. By building on a careful exploration of the properties of the variables involved, it is established that interest rate rules --often...