We use a model of proportionate growth to describe the dynamics of international trade flows. We provide an explanation to the fact that the extensive margin of trade account for a large fraction of the greater exports of large economies, as well as for a number of stylized facts described by the literature on trade networks such as the power-law distribution of connectivity and the fat tails d...

This paper examines how unhedged currency exposure of firms varies with changes in currency flexibility. A sequence of four time-periods with alternating high and low currency volatility in India provides a natural experiment in which changes in currency exposure of a panel of firms is measured, and the moral hazard versus incomplete markets hypotheses tested. We find that firms carried higher ...

Numerous economic historians have suggested that institutions which supported contract enforcement were necessary for impersonal exchange to emerge in medieval Europe. Yet this literature cannot account for the bill of exchange, an important financial instrument that was legally enforced in both the medieval Islamic and Christian worlds but remained relegated to personal networks in only the fo...

A practice that has become widespread is that of comparing forecasts of financial return variability obtained from discrete time models against high frequency estimates based on continuous time theory. In explanatory financial return variability modelling this raises several methodological and practical issues, which suggests an alternative framework is needed. The contribution of this study is...

The aim of this paper is to discuss the hedging techniques that a company based in an emerging market country can use to hedge the risk associated with jet fuel or kerosene. The company can be an airline company or a market intermediary offering contracts on this important commodity. An empirical analysis reveals two main directions for minimum risk hedging: one is to cross-hedge directly the c...

Using novel real-time data on a broad set of economic fundamentals for …ve major US dollar exchange rates over the recent ‡oat, we employ a predictive procedure that allows the relationship between exchange rates and fundamentals to evolve over time in a very general fashion. Our key …ndings are that: (i) the well-documented weak out-of-sample predictive ability of exchange rate models may be c...

We study the properties of foreign exchange risk premia that can explain the forward bias puzzle – the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premia arise endogenously from the no-arbitrage condition we impose on the relation between the term structure of interest rates and exchange rates, and they compensate for both currency risk and interes...

This paper evaluates three models for predicting currency crises that were proposed before 1997. The idea is to answer the question: if we had been using these models in late 1996, how well armed would we have been to predict the Asian crisis? The results are mixed. Two of the models fail to provide useful forecasts. One model provides forecasts that are somewhat informative though still not re...

This paper examines the issues related to the competition between two currencies in an agent-based computational economic model. The economic environment is a two-country overlapping generations economy with no restrictions on foreign currency holdings. Governments of both countries nance their de cits via seignorage. Agents make decisions about their savings and portfolio decisions. They use t...

We propose a nonlinear heterogeneous panel unit root test for testing the null hypothesis of unit-root processes against the alternative that allows a proportion of units to be generated by globally stationary ESTAR processes and a remaining non-zero proportion to be generated by unit root processes. The proposed test is simple to apply and accommodates cross section dependence. Monte Carlo sim...