This paper focuses on the theory of uncovered interest rate parity and whether interest-rate differentials have resulted in the higher interest rate currency depreciating over time. Previous literature has empirically rejected the theory indicating that higher interest rate currencies have actually appreciated relative to lower interest rate currencies. In this paper, uncovered interest rate pa...

The two-country monetary model is extended to include a consumption externality with habit persistence. This is set within a limited participation framework. The model is simulated using the artificial economy methodology. The ‘puzzles’ in the forward market are re-examined. The model is able to account for (a) the persistence in the forward discount (b) the random walk in spot exchange rates (...

This paper examines the effects of inflation and currency substitution volatility on the average rates of inflation and currency substitution for twelve emerging market economies. Using a bivariate GARCH-in-Mean model, which accommodates for asymmetric and spillover effects of inflation and currency substitution innovations on their volatilities, we find that for the majority of the countries i...

The present paper tests for the validity of long-run purchasing power parity (PPP) for seventeen European economies in transition. Analysis is performed following the methodological suggestions expressed in recent studies for PPP. Longrun PPP is initially tested for each economy vis-a-vis the US, using the Johansen cointegration methodology and then for the whole set of countries using the Lars...

This paper confronts exchange rate-trade balance hypotheses derived from the elasticity, absorption/switching and monetary approaches to the balance of payments and short-run disequilibrium effects such as the J and S curves with data from a wide range of developing countries. We find strong evidence that the exchange rate affects the trade balance long-run equilibrium even when money and incom...

I discuss the measurement of world poverty and inequality, with particular attention to the role of purchasing power parity (PPP) price indexes from the International Comparison Project. Global inequality increased with the latest revision of the ICP, and this reduced the global poverty line relative to the US dollar. The recent large increase of nearly half a billion poor people came from an i...

Article history: Received 9 May 2012 Received in revised form 8 August 2013 Accepted 8 August 2013 Available online 27 August 2013 The paper examines the Canada–US real exchange rate since the early 1970s to test two popular explanations of the long-run real exchange rate based on the influence of sectoral productivities and commodity prices. The empirical analysis finds that both variables exe...

Our results complement the recent ̄ndings of real exchange rates as stationary processes. The standard procedure of applying a battery of unit root tests can be problematic since the tests are sensitive to the speci ̄cs of the time series process. The novelty of the approach we apply is in emphasizing the information content of the data in distinguishing between the competing processes. Stationa...

Long memory or structural breaks: Can either explain nonstationary real exchange rates under the current oat? Christopher F. Baum Boston College Chestnut Hill, MA 02467 USA John T. Barkoulas Louisiana Tech University Ruston, LA 71272 USA Mustafa Caglayan Koç University Istanbul, Turkey This paper considers two potential rationales for the apparent absence of mean reversion in real exchange rate...

This paper studies the effect of real effective exchange rate (REER) volatility on economic growth as well as the euro’s effect on REER volatility. We first show that, after a plausible endogeneity correction, REER volatility is negatively associated with growth in a 1980~2011 panel of OECD countries. One standard deviation volatility decrease is associated with about two percentage points (0.8...