One of the reasons for governments to employ capital controls is to obtain some degree of monetary independence. In this paper we test whether capital controls can reduce the link between exchange rates fluctuations and cross border interest differentials. Recent capital control proxies are used...

This paper investigates the time-varying nature of expectation formation rules for institutional investors in the foreign exchange market. Using a dataset of survey expectations for four exchange rates, we first distinguish three different general rules. We find a momentum rule, a fundamental...

We develop and estimate a dynamic heterogeneous agent model for the EMS period. Our empirical results suggest that the existence of heterogeneous interacting agents is indeed a possible explanation for the dynamics of exchange rates during the EMS. We find strong evidence of heterogeneous...