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Puzzles in international finance

In: Controversies in Economics and Finance

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Abstract

The puzzles of international finance are the exchange rate determination puzzle, the purchasing power parity (PPP) puzzle, the exchange rate volatility puzzle, the Meese_Rogoff puzzle and the forward bias puzzle. While the determination puzzle, excess volatility puzzle and PPP puzzle are about the explanatory power of exchange rate determination models, the Meese_Rogoff puzzle is about the predictive power of these models. The forward bias puzzle pertains to the relation between the spot and forward exchange rates. None of these puzzles is a puzzle in the sense that they cannot be explained. In fact, simple and plausible explanations are available for each and every one of them; the problem is that economists do not like simple explanations.

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  • ., 2020. "Puzzles in international finance," Chapters, in: Controversies in Economics and Finance, chapter 2, pages 14-47, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19689_2
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    Cited by:

    1. Li, Jiaqi, 2023. "Predicting the demand for central bank digital currency: A structural analysis with survey data," Journal of Monetary Economics, Elsevier, vol. 134(C), pages 73-85.

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