While the impact of exchange rate changes on economic growth has long been an issue of key importance in international macroeconomics, it has received renewed attention in recent years, owing to weaker growth rates and the debate on "currency wars". However, in spite of its prevalence in the...

DSGE models with generalized shock processes have been a major area of research in recent years. In this paper, I show that the structural parameters governing DSGE models are not identified when the driving process behind the model follows an unrestricted VAR. This finding implies that...

Maximum likelihood estimation of discretely observed diffusion processes is mostly hampered by the lack of a closed form solution of the transient density. It has recently been argued that a most generic remedy to this problem is the numerical solution of the pertinent Fokker-Planck (FP) or...

Long memory (long-term dependence) of volatility counts as one of the ubiquitous stylized facts of financial data. Inspired by the long memory property, multifractal processes have recently been introduced as a new tool for modeling financial time series. In this paper, we propose a parsimonious...

This paper shows how exact solutions for the transient density of a large class of continuous-time Markov switching models can be obtained. We illustrate the pertinent approach for both simple diffusion models with a small number of regimes as well as for the more complicated so-called Poisson...

Available evidence supports the view that growth is faster in more open economies. In order to analyze the implications of openness and growth on determinacy and learnability of worldwide rational expectations equilibria we develop a two-country New Keynesian model with growth. We analyze these...

The coordination channel has recently been established as an additional means by which foreign exchange market intervention may be effective. It is conjectured that strong and persistent misalignments of the exchange rate are caused by a coordination failure among fundamentals-based traders. In...

Foreign exchange rates, asset prices and capital movements are expected to be closely related to each other as international capital markets become more and more integrated. This paper provides new empirical evidence from an index of exchange-rate adjusted cross-country asset price ratios, which...

Though unambiguously outperforming all other financial markets in terms of liquidity, foreign exchange trading is still performed in opaque and decentralized markets. In particular, the two-tier market structure consisting of a customer segment and an interdealer segment to which only market...

This paper uses a microstructure approach to analyze the effectiveness of capital controls introduced in Brazil to counter an appreciation of the Real. Based on a rich data set from the Brazilian foreign exchange market, we estimate a reduced-form VAR to characterize the interaction of the...