Exchange Rate Dynamics and Fundamental Equilibrium Exchange Rates

Equilibrium models of exchange rates

Most of the large industrialized countries floated their exchange rates in early 1973, after the demise of the post-war Bretton Woods system of fixed exchange rates. While there have been extensive academic disputes over the relative merits of fixed and floating exchange rates, most discussions have been carried out on a largely hypothetical basis. The move to a generalized floating regime prov...

Exchange Rate Probability Distributions and Fundamental Variables

This study attempts to increase fundamental variables ability to explain exchange rate price changes. To do this fundamental variables from the various theoretical models are linked with the distributional characteristics of exchange rate changes. Models are developed that relate fundamental economic variables to the specific forms of the distributions of exchange rate changes. Data sets are de...

Investment Driven Exchange Rate Dynamics

Macroeconomic exchange rate research has primarily been focused on the consumption correlation puzzle identi ed by Backus and Smith (1993). This research has largely ignored the dynamic correlations present between exchange rates and other macro variables such as output, and investment. In this paper I build evidence that a relationship may exist between gross national investment and exchange r...

Nonlinearity In Exchange Rates and Forecasting

Nonlinearities and Real Exchange Rate Dynamics

We con...rm the presence of substantial non-linearities in real exchange rate dynamics at the sectoral level. There exists zones where arbitrage is not pro...table because of transaction costs, and thus mean reversion is inexistent. We compute the speed of mean reversion of sector speci...c real exchange rates, conditional on the existence of arbitrage as implied by our non-linear estimations, ...