EXCHANGE RATE ECONOMICS AND MACROECONOMIC FUNDAMENTALS

Macroeconomic Fundamentals and the DM/$ Exchange Rate: Imperfect Knowledge and the Monetary Model

Despite the volumes written on the failure of empirical exchange rate models, there is a key feature of the record that is much overlooked, namely there are some subperiods of floating rates during which macroeconomic models provide reasonable explanations of monthly or quarterly exchange rate movements and other subperiods during which the explanatory power of these models completely disappear...

eal exchange rate targeting and macroeconomic instability * ́

Using an optimizing model of a small open economy, this paper studies the macroeconomic effects of PPP rules whereby the government increases the devaluation rate when the real exchange rate—defined as the price of tradables in terms of nontradables—is below its long-run level and reduces the devaluation rate when the real exchange rate is above its long-run level. The paper shows that the mere...

Fundamentals Based Exchange Rate Prediction Revisited

This paper revisits the role of macroeconomic fundamentals as predictors for exchange rate movements at different horizons. It takes seriously the notion that the fundamental dynamics of an economy is hard to measure and that the usual measures, such as monetary aggregates, price index and deflator series and GDP, are imperfect approximations of these fundamental movements. As an alternative me...

Effects of Financial Liberalization on Macroeconomic Volatilities: Applications to Economic Growth, Exchange Rate and Exchange Rate Pass-Through

The Contribution of Observed and Unobserved Fundamentals to Exchange Rate Movements in Iran

Using a State-space model, this paper investigates the contribution of both observed and unobserved fundamentals to nominal exchange rate movement in Iran for the period 1991:2-2011:4. To this end, we follow Engel and West (2005) and Balke et al. (2013) and use an asset-pricing approach to develop a rational expectations present value exchange rate model. In order to examine the role of fun...