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...

We present an empirical investigation of the hypotheses that exchange rate uncertainty may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries’ bilateral real trade flows over the period 1980–1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate ...

This paper further tests Romer’s (1993) extension of Kydland and Prescott’s (1977) predictions for dynamic-inconsistency problems in open economies. In a panel data set of developed and developing countries from 1973 to 1998, I find that openness does not play a role in restricting inflation in the short-run. On the other hand, a fixed exchange-rate regime plays a significant role. The results ...

Recent research has revealed a wealth of information about the microeconomics of currency markets and thus the determination of exchange rates at short horizons. This information should help in designing exchange-rate models. This paper analyzes an existing model that was previously demonstrated to be consistent with most of the major puzzles that have emerged under floating rates. It shows tha...

We implement novel tests of general relative purchasing power parity (PPP), defined as a long-run unit elasticity of the nominal exchange rate with respect to relative national prices, allowing for potentially permanent real exchange rate shocks. The finite-sample properties of the estimators used are analyzed through Monte Carlo analysis, allowing for country heterogeneity, cross-sectional dep...

We present an empirical investigation of the hypotheses that exchange rate volatility may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries’ bilateral real trade flows over the period 1980–1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate u...

We estimate the exposure of emerging-market companies to fluctuations in their domestic exchange rates. We use an instrumental-variable approach that identifies the total exposure of a company to exchange-rate movements, yet abstracts from the influence of confounding macroeconomic shocks. We find the impact of depreciations on emerging-market stock returns is overwhelmingly negative. Since we ...

We examine the mean-reverting properties of real exchange rates, by comparing the unit root properties of a group of international real exchange rates with two groups of intranational real exchange rates. Strikingly, we find that while the international real rates taken as a group appear mean reverting, the intranational rates are not. This is consistent with the view that while nominal shocks ...