Fixed exchange rates are less volatile than floating rates. But the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes. This suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very...

This paper develops a simple but general methodology to estimate the expected intertemporal marginal rate of substitution or quot;EMRSquot;, using only data on asset prices and returns. Our empirical strategy is general, and allows the EMRS to vary arbitrarily over time. A novel feature of our...

This paper develops a simple new methodology to test for asset integration and applies it within and between American stock markets. Our technique is tightly based on a general intertemporal asset-pricing model, and relies on estimating and comparing expected risk-free rates across assets....

In the context of a flexible-price monetary exchange rate model and the assumption of uncovered interest parity, we obtain a measure of the fundamental determinant of exchange rates. Daily data for the European Monetary System are used to explore the importance of non-linearities in the...

Regressions of ex post changes in floating exchange rates on appropriate interest differentials typically imply that the high- interest rate currency tends to appreciate, the `forward discount puzzle.' Using data from the European Monetary System, we find that a large part of the forward...

A developing country often pegs its exchange rate to a single currency, such as the U.S. dollar, even though it faces a higher inflation rate than the country to which it is pegged. As a consequence, it experiences real exchange-rate misalignments and a series of easily-anticipated devaluations....

In the 1990s, currency crises in Europe, Mexico and Southeast Asia have drawn worldwide attention to speculative attacks on government-controlled exchange rates. To improve our understanding of these events, researchers have undertaken new theoretical and empirical work. In this paper, we...

The possibility that movements in market prices of assets or goods may be caused by self-fulfilling prophecies, called bubbles or sunspots, has long intrigued market observers. If bubbles or sunspots exist, market prices differ from their fundamental values, and markets do not necessarily...

This paper develops an open-economy model of the business cycle. Thenominal prices in the model are flexible and monetary nonneutrality isdeveloped using information confusion about the sources of disturbances todemand coupled with differential persistence of demand shocks. Firms useinventories...

The paper develops a general stochastic macroeconomic model which can be used to study the international transmission of disturbances under alternative exchange-rate systems. Four types of exchange-rate systems are considered: uniform flexible exchange rates, uniform fixed exchange rates,...