Interest in the interface of nonstationarity and nonlinearity has been increasing in the econometric literature. This paper provides a formal method of testing for nonstationary long memory against the alternative of particular forms of nonlinerarity. The nonlinear models we consider are ESTAR and SETAR models. We provide analysis on the asymptotic properties of the tests and carry out a detail...

This paper shows that even adjusted for the time-varying risk premiums implied by the yield curves across countries, uncovered interest parity is still strongly rejected by the data. Moreover, factors that predict the excess bond returns are found not significant at all in predicting the foreign exchange returns. These results reject the joint restrictions on the exchange rate and interest rate...

I show that the US dollar earns a safety premium versus a basket of foreign currencies and that this premium is particularly high in times of global financial stress. These findings support the view that the dollar acts as the reserve currency for the international monetary system and that it is a natural safe haven in times of crisis, when a global flight to quality toward the reserve currency...

The hypothesis that the forward rate is an unbiased predictor of the future spot rate has been consistently rejected in recent empirical studies. This paper examines several sources of measurement error and misspecification that might induce biases in such studies. Although previous inferences are shown to be robust to a failure to construct true returns and to omitted variable bias arising fro...

Using intra-day data, this paper investigates the contribution to the price discovery of Euro and Japanese Yen exchange rates in three foreign exchange markets based on electronic trading systems: the CME GLOBEX regular futures, E-mini futures, and the EBS interdealer spot market. Contrary to evidence in equity markets and more recent evidence in foreign exchange markets, the spot market is fou...

The purpose of this paper is to investigate the ability of parameter instability tests in regressions with I(1) processes to discriminate between changes in the cointegrating relationship and changes in the marginal distribution of the regressors. Using annual data for the G-7 countries and the Purchasing Power Parity, we conclude that the regression coefficient between the price level differen...

The general-to-specific (GETS) approach to modelling is widely employed in the modelling of economic series, but less so in financial volatility modelling due to computational complexity when many explanatory variables are involved. This study proposes a simple way of avoiding this problem and undertakes an out-of-sample forecast evaluation of the methodology applied to the modelling of weekly ...

This survey discusses theoretical models of speculative attack and currency crises, and reviews the empirical evidence. The paper outlines the correspondence of the models to different cases of crisis (e.g. Latin American crises, the ERM breakdown, and the recent Asian crisis), and points to gaps in the theoretical literature for explaining the Asian crisis. The large economic costs resulting f...

Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Despite this limitation four major lessons emerge: First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, policy-makers must decide about some EWSs' elements, such as the sensitivity of the fore...

We examine the effects of unconventional monetary policy surprises on the value of the dollar using high-frequency intraday data and contrast them with the effects of conventional policy tools. Identifying monetary policy surprises from changes in interest rate future prices in narrow windows around policy announcements, we find that monetary policy surprises since the Federal Reserve lowered i...