This survey discusses theoretical models of speculative attack and currency crises, and reviews the empirical evidence. The paper outlines the correspondence of the models to different cases of crisis (e.g. Latin American crises, the ERM breakdown, and the recent Asian crisis), and points to gaps in the theoretical literature for explaining the Asian crisis. The large economic costs resulting f...

Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Despite this limitation four major lessons emerge: First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, policy-makers must decide about some EWSs' elements, such as the sensitivity of the fore...

In the nineteenseventies, James Tobin suggested the introduction of a transaction tax on the currency market to cope with exchange rate volatility. We investigate the consequences of the introduction of such a tax on an asset market model from a game-theoretic and an experimental point of view. Our main results include in respect to our model that contrary to the situation in game-theoretic equ...

Economists and econometricians very often work with data which has been temporally disaggregated prior to use. Hence, the quality of the disaggregation clearly affects the quality of the analyses. Building on Chow and Lin’s (1971) disaggregation model this paper proposes a new estimation approach and a specification test which assesses the quality of the disaggregation model. An advantage of th...

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...

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...