This study investigates an adjustment process in the bilateral trade balances of five countries within the Caribbean, with their largest trading partner, namely the United States. Unlike previous studies, this study controls for oil prices which play a vital role in the countries’ trade balances. A panel econometric technique was utilized using annual data over the period 19802012. Analysis of ...

In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The empirical results suggest that this model does successfully explain daily DM/Dollar forward exchange rate dynamics from 1982 to 1998. Moreover, our findings turned out to be relative robust by estimating the model in subs...

We investigate the implications of the new price information in the latest International Comparison Program (ICP) survey for evaluating the year 2005 exchange rate misalignment estimates. A decomposition exercise reveals that the misalignment revisions are substantially affected by the ICP price updates. Two measurement-related and four economic factors are used to explain the differences in mi...

This paper investigates the interrelation and information flows between the Won–Dollar spot and offshore forward, i.e., NDF markets. In particular, this paper focuses on the impact of the reform in the Korean exchange rate systems, which occurred in December 1997 in response to the currency crisis, on the relation between the two markets. Using the augmented GARCH formulation, this paper finds ...

This paper studies the Balassa-Samuelson hypothesis in two areas with strong differences in economic development, sixteen OECD countries and sixteen Latin American economies. Applying panel cointegration and bootstrapping techniques that solve for cross-sectional dependence problems in the data, we find that the second stage of the hypothesis, which relates relative sector prices with the real ...

The aim of this paper is to investigate the effects of bounded rationality on labour market dynamics. The model is based on a standard New Keynesian model that incorporates labour market search and matching frictions developed by Trigari (2006). During the bargaining process, wages and working hours are jointly determined by firms and workers. Expectations heterogeneity is introduced by assumin...

The smooth threshold autoregressive (STAR) model is by far the most successful model in explaining the well-known two PPP puzzles. The nonlinearity in STAR captures the nature of vast transaction costs in trade, sunk costs in (foreign) investment, and hetergeneity in agents. In this paper, we use a variant of STAR, the Exponential STAR (ESTAR), to study the exchange rate dynamics in China durin...

The paper examines the transmission mechanism of monetary policy in an open economy with and without a binding zero bound on nominal interest rates. In particular, a foolproof way of escaping from a liquidity trap is suggested, consisting of a price-level target path, a devaluation of the currency and a temporary exchange rate peg, which is later abandoned in favor of price-level or in‡ation ta...

We construct a two-country DSGE model with multiple stages of processing and localcurrency staggered price-setting to study cross-country quantity correlations driven by monetary shocks. The model embodies a mechanism that propagates a monetary surprise in the home country to lower the foreign price level while restraining the home price level from rising too quickly; and, it does so through re...

The paper studies a factor GARCH model and develops test procedures which can be used to test the number of factors needed to model the conditional heteroskedasticity in the considered time series vector. Assuming normally distributed errors the parameters of the model can be straightforwardly estimated by the method of maximum likelihood. Inefficient but computationally simple preliminary esti...