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...

This paper estimates the impact of China’s exchange rate changes on exports of competitor countries in third markets, which we call the “spillover effect”. We use recent theory to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit the variation—afforded by disaggregated t...

There is considerable heterogeneity in the development of derivatives markets in different countries. The question is: why? This paper addresses this question in the context of major derivatives markets in Latin America. The largest derivatives exchanges in Latin America are located in Argentina, Brazil, and Mexico. In addition, over-the-counter (OTC) markets exist in Chile and Peru. Excluding ...

This paper investigates the effects of government spending on the real exchange rate and the trade balance in the US using a new VAR identification procedure based on spending forecast revisions. I find that the real exchange rate appreciates and the trade balance deteriorates after a government spending shock, although the effects are quantitatively small. The findings broadly match the theore...

We employ a vertical differentiation model to examine the potential bias in pricing-to-market (PTM) results when using unit values aggregating differentiated products. Our results show that: i) false evidence of PTM (“pseudo PTM”) is always found when using unit values, whether the law of one price holds or not; and ii) the extent to which results are biased due to pseudo PTM increases with the...

This paper analyses optimal monetary policy in a small open economy allowing for financial dollarization (FD). More importantly, we endogenise FD, making it dependent on the expected monetary policy. Contrary to the standard small open economy model, where central banks should control domestic (producer) prices and adopt a pure floating exchange rate regime, we find that some exchange rate cont...

This paper confronts exchange rate-trade balance hypotheses derived from the elasticity, absorption/switching and monetary approaches to the balance of payments and short-run disequilibrium effects such as the J and S curves with data from a wide range of developing countries. We find strong evidence that the exchange rate affects the trade balance long-run equilibrium even when money and incom...

This paper investigates whether there are three distinctive features in financial asset prices, that is, time-varying conditional volatility, jumps and the component factors of volatility. It adopts a component-GARCH-Jump, which can efficiently capture the three features simultaneously. Our results demonstrate that the three features exist in the Taiwan exchange rate. Besides time-varying condi...

â â â â  libya experienced a substantial increase in oil revenue as a result of increased oil prices during the period of the late 1970s and early 1980s, and again after 2000. recent increases in oil production and the price of oil, and their positive and negative macroeconomic impacts upon key macroeconomic variables, are of considerable contemporary importance to an oil dependent economy such...

this paper presents a new index of financial stress which is constructed by macro data from different financial markets (including banking sector and also housing, foreign exchange and stock markets). the proposed approach has been applied to the iranian economy based on the available quarterly time series, covering the period 1991(1)–2008(2). the paper explains how the selected components capt...