Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper examines whether deviations from PPP are stationary in the presence of nonlinearity, and whether the adjustment toward PPP is symmetric from above and below. Using alternative nonlinear models, our results support mean reversion and asymmetric adjustment dynamics. We find differences in magnitudes, frequencies, and durations of the deviations of exchange rates from fixed and time-varying thresholds, both between over-appreciations and over-depreciations and between developed and developing countries. In particular, the average cumulative sum of deviations during periods when exchange rates are below forecasts is twice that of the sum during periods of over-appreciation, and is larger for developing than for advanced countries.

Foreign Exchange --- Investments: General --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- Investment --- Capital --- Intangible Capital --- Capacity --- Currency --- Foreign exchange --- Macroeconomics --- Real exchange rates --- Purchasing power parity --- Depreciation --- Exchange rate adjustments --- Exchange rates --- National accounts --- Saving and investment --- United States

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Statistical measures of the volatility of exchange rates, interest rates, and stock prices are estimated for a number of countries. Periods of high volatility are identified and compared with periods of financial difficulty. The results indicate that GARCH models of volatility could be potentially useful in assessing financial soundness. Daily data are more revealing, but monthly series allow comparisons among many countries. Country specific models may be needed for more reliable inference.

Finance: General --- Financial Risk Management --- Foreign Exchange --- Macroeconomics --- Financial Markets and the Macroeconomy --- Financial Institutions and Services: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Price Level --- Inflation --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Currency --- Foreign exchange --- Finance --- Economic & financial crises & disasters --- Exchange rates --- Asset prices --- Stock markets --- Financial crises --- Capital markets --- Prices --- Financial markets --- Stock exchanges --- Capital market --- Mexico

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

We provide empirical evidence that deviations from uncovered interest rate parity (UIP) display significant nonlinearities, consistent with theories based on transaction costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research.

Banks and Banking --- Foreign Exchange --- Money and Monetary Policy --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- Finance --- Monetary economics --- Interest rate parity --- Exchange rates --- Forward exchange rates --- Spot exchange rates --- Currencies --- Financial services --- Money --- Interest rates --- United Kingdom

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper examines the impact of the introduction of inflation targeting on the unemployment-inflation trade-off in OECD countries. Theoretical models suggest that the credibility-enhancing effects of the adoption of inflation targeting should cause an improvement in the unemployment-inflation trade-off, i.e., that reducing inflation by a given amount should occur with a smaller rise in unemployment. The empirical evidence examined for OECD countries adopting inflation targeting supports this hypothesis. Using a smooth transition regression model, it is shown that the improvement in this trade-off does not take place immediately after the adoption of inflation targeting; rather, it improves over time as the credibility of the central bank is established.

Inflation --- Labor --- Money and Monetary Policy --- Monetary Policy --- Price Level --- Deflation --- General Aggregative Models: Forecasting and Simulation --- Unemployment: Models, Duration, Incidence, and Job Search --- Monetary economics --- Macroeconomics --- Labour --- income economics --- Inflation targeting --- Unemployment --- Unemployment rate --- Disinflation --- Monetary policy --- Prices --- New Zealand