Sharp exchange rate depreciations in the East Asian crisis countries (Indonesia, Korea, and Thailand) raised doubts about the efficacy of increasing interest rates to defend the currency. Using a standard monetary model of exchange rate determination, this paper shows that tighter monetary policy was in fact associated with an appreciation of the exchange rate in these countries and during the ...

Saving and investment are I(1) processes and generally do not cointegrate. This suggests the need for a nonstationary panel methodology to estimate the long run saving-investment association. We reconsider the Feldstein-Horioka puzzle using a mean group procedure which provides consistent estimates for nonstationary, heterogeneous panels. The resultant slope coe¢cient estimate for 12 OECD econo...

The persistence properties of economic time series has been a primary object of investigation in a variety of guises since the early days of econometrics. This paper suggests investigating the persistence of processes conditioning on their history. In particular we suggest that examining the derivatives of the conditional expectation of a variable with respect to its lags maybe a useful indicat...

This paper examines the effect of FDI activity on manufacturing exports in four MENA countries. The sensitivity of manufacturing exports and the share in manufacturing exports in total exports to two measures of FDI activity is tested. The findings of this analysis suggest that FDI activity may have a positive effect on the host country’s manufacturing exports. The magnitude of the effect howev...

This paper proposes a simple chartist-fundamentalist model in which we allow for nonlinear time variation in chartists’ extrapolation rate. Estimation of the model using monthly data for the major currencies vis-a-vis the US dollar shows that the model is significant in-sample and that it has out-of-sample predictive power for some of the currencies. We investigate the power of tests of the ran...

Adopting an asset-market view of international risk sharing, we identify various sources of macroeconomic risk faced by international investors using a structural Vector Autoregression model. We find that most of the risk of exogenous financial market shocks are shared by international investors through the existing asset markets. However, other macroeconomic risks such as those associated with...

Recent studies of purchasing power parity (PPP) account for the possible presence of unit roots in nominal exchange rates and relative price indices by applying standard unit-root tests to real exchange rates, which are ratios of nominal exchange rates and relative price indices. These studies occasionally find evidence of PPP, but as a whole, the evidence is not definitive. Standard unit-root ...

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 paper studies the survival of fixed exchange rate regimes. The probability of an exit from a fixed exchange rate regime depends on the time spent within this regime. In such a context durations models are appropriate, in particular because of the possible non-monotonic pattern of duration dependence. Non-parametric estimates show that the pattern of duration dependence exhibits non-monoton...

The purpose of this paper is to investigate the role of exchange rate uncertainty in determining foreign direct R&D investment into the UK. We estimate an econometric model of FDI in R&D, using a panel of manufacturing industries. Our results suggest that an increase in the volatility of the euro-dollar exchange rate tends to relocate R&D investment from the Euro Area into the UK. A rise in the...