Most empirical papers on the importance of credibility and reputation for the conduct of economic policies are based on ad hoc models which bear little resemblence to the theoretical models of policy games which have made these concepts popular in the academic literature. The purpose of the...

In exchange rate target zone models the commitment of policymakers to intervene at the boundaries of the band gives rise to speculation which stabilizes exchange rates within the band. The empirical implications of such stochastic process switching are discussed and their relevance for the...

It is frequently argued that the EMS itself in connection with the high anti-inflation reputation of the German Bundesbank is responsible for the inflation reduction and convergence which member countries have experienced. Based on the game theoretical model of Backus and Driffill (1985), an...

Stylized empirical facts about the behaviour of exchange rates and interest rate differentials in real world target zone arrangements are at odds with the predictions of the simple (fully credible) target zone model. Incorporating time-varying devaluation risk in target zone models results in...

Most alternative blueprints for European Monetruy Union (EMU) differ in their opinions about convergence requirements or the need for binding fiscal rules and controls of individual national governments' debt policies, but there is, if not complete consensus, widespread agreement that the...

Stylized empirical facts about the correlation between the volume of international trade and exchange rate variability/uncertainty are at odds with the predictions of the simple open economy model. The present paper argues that this puzzle may be explained by drawing on the recent theoretical...