Exchange Rates and the International Adjustment Process

International Prices and Exchange Rates

We survey the recent empirical and theoretical developments in the literature on the relation between prices and exchange rates. After updating some of the major findings in the empirical literature we present a simple framework to interpret this evidence. We review theoretical models that generate insensitivity of prices to exchange rate changes through variable markups, both under flexible pr...

Asymmetric Adjustment and Nonlinear Dynamics in Real Exchange Rates

This paper examines whether deviations from PPP are stationary in the presence of nonlinearity, and whether the adjustment towards PPP is symmetric from above and below. Using alternative nonlinear models, our results support mean reversion and asymmetric adjustment dynamics. We find differences in magnitudes, frequencies and durations of the deviations of exchange rates from fixed and time-var...

Exchange Rate Uncertainty and Labour Market Adjustment under Fixed and Flexible Exchange Rates

The standard literature on working time has modelled the decisions of firms in a deterministic framework in which firms can choose between employment and overtime (given mandated standard hours). Contrary to this approach, we follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm ́s revenues in domestic currency are stochast...

Nonlinearity In Exchange Rates and Forecasting

The Stabilizing Properties of Floating Exchange Rates: Some International Evidence

This paper analyzes the stabilizing properties of alternative monetary policy regimes. In practice there is a choice between two broad types of monetary policy regimes: a fixed exchange rate regime or a floating exchange rate regime. In this paper I compare exchange rate targeting with different floating exchange rate regimes: strict price level targeting, flexible price level targeting and out...