McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle. We estimate this monetary policy reaction function within the framework of an affine term structure model to find that, contrary to...

The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully...

This paper documents two facts about countries with floating exchange rates where monetary policy controls inflation using a short-term interest rate. First, the current real exchange rate predicts future changes in the nominal exchange rate at horizons greater than two years both in sample and...

We document a drift in exchange rates before monetary policy changes across major economies. Currencies tend to depreciate by 0.7 percent over ten days before policy rate cuts and appreciate by 0.5 percent before policy rate increases. We show that available fixed income instruments allow to...

We examine the predictive power of real time linear monetary models with possible nonlinear adjustment in forecast errors for the GBP/USD exchange rates. Real time revisions of UK and US monetary aggregates and output are significant; therefore the use of final data on fundamentals in...

It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also...

This study explores the dynamic relationship between the parameters of the yield curve, macrofinancial variables, and the USD/TRY exchange rate in Türkiye, with a particular focus on the period following the steep 2018 currency depreciation. Using the Nelson-Siegel model, we examine the...

This paper analyses the impact of central bank interven-tions in the inflation targeting regime. The results of empirical stud-ies in this paper show if there is a shock of the exchange rate, which would lead to depreciation of the exchange rate, a central bank may decide to mush instability on...

In this paper we re-consider the effects of monetary policy shocks on exchange rates and forward premia. In the recent empirical literature, these effects have been predominantly described as puzzling, in that they would include delayed overshooting of the exchange rate as well as persistent...