We explore how the underlying informational frictions, or anonymity, that give rise to the existence of monetary exchange affect international exchange rate dynamics. Using a two-country, two-sector model, we show that information friction implies a particular restriction on domestic relative pricing dynamics and hence on international nominal and real exchange rate determination. Furthermore, ...

Banking crises are fairly ubiquitous events with large adverse consequences. This paper studies the potential for banking crises and their effects on exchange rate policies in a microfounded general equilibrium dynamic model in the tradition of Diamond and Dybvig (1983) and Chang and Velasco (2000). More specifically, we produce a small open economy pure exchange overlapping generations model w...

In a recent paper, Baillie and Bollerslev (1989) using daily data from 1980 to 1985, identified six common stochastic trends in a vector of seven nominal exchange rates implying the existence of one cointegrating vector. Cointegration implies that (Granger) causality must run in at least one direction, that is, at least one of the exchange rates is predictable using current available informatio...

This paper proposes to develop a balance-of-payments-constrained growth model analyse the importance of relationship between real exchange rate misalignment and share industry in output. Building on work Gabriel, Jayme Oreiro (2016), is expanded address: (i) influence price competitiveness net exports; (ii) capital mobility; (iii) nominal flexibility; (iv) wage as fraction value labour producti...

We analyze optimal policy in a simple small open economy model with price setting frictions. In particular, we study the optimal response of the nominal exchange rate following a terms of trade shock. We depart from the New Keynesian literature in that we explicitly model internationally traded commodities as intermediate inputs in the production of local final goods and assume that the small o...

Indeed, a nominal appreciation may help reduce reserve inflows and allow for a more autonomous monetary policy in the case of overheating. A plausible strategy would be a small one-step revaluation, which would bring the renminbi to parity with the Hong Kong dollar. However, such an adjustment may provoke additional speculative capital inflows and is not even necessary to bring about the real a...

Recent tests using long data series find evidence in favor of long-run PPP. These tests may have reached the wrong conclusion. Using artificial data calibrated to nominal exchange rates and disaggregated data on prices, we show that tests on long-run PPP have serious size biases. In the baseline case, unit root and cointegration tests with a nominal size of 5% have true sizes that range from 0....

in this paper, the value of exchange rate was calculated in order to determine comparative advantage in crops of sari township during 2009-2010. hence, first, comparative advantage indices are estimated by using a policy analysis matrix. the results showed that just wheat has a drc index of one in the minimum amount of national currency exchange rate value. this indicated the fact that only whe...

We propose a candidate solution to the imperfect exchange rate passthrough puzzle: habit persistence at the level of individual goods varieties. Deep habits generate a dynamic import demand function that leads to import price markup adjustments, independently of nominal pricing frictions. Augmenting a standard two-country model with deep habits, we obtain low exchange rate pass-through to impor...