Exchange Rate Puzzles: A Review of the Recent Theoretical and Empirical Developments

The IUP Journal of Monetary Economics, Vol. 8, Nos. 1 & 2, pp. 77-112, February & May 2010

Posted: 9 Mar 2010

See all articles by Thabo Mokoena

Thabo Mokoena

affiliation not provided to SSRN

Rangan Gupta

University of Pretoria - Department of Economics

Renee Koekemoer Van Eyden

University of Pretoria

Date Written: March 8, 2010

Abstract

This paper presents a comprehensive literature review of the theoretical and empirical developments that have taken place over the last two decades in an attempt to address the exchange rate puzzles. Specifically, it discusses the nonlinear and Bayesian econometric techniques, dynamic general equilibrium models, and the market microstructure approach that have been designed to address the three exchange rate puzzles, namely, the Purchasing Power Parity (PPP) puzzle, the exchange rate disconnect puzzle and the exchange rate determination puzzle. The paper concludes that the exchange rate puzzles are likely to be less puzzling, if researchers decide to move to nonlinear econometric frameworks and micro-founded general equilibrium models.

Suggested Citation

Mokoena, Thabo and Gupta, Rangan and Koekemoer Van Eyden, Renee, Exchange Rate Puzzles: A Review of the Recent Theoretical and Empirical Developments (March 8, 2010). The IUP Journal of Monetary Economics, Vol. 8, Nos. 1 & 2, pp. 77-112, February & May 2010, Available at SSRN: https://ssrn.com/abstract=1566802

Thabo Mokoena (Contact Author)

affiliation not provided to SSRN ( email )

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Renee Koekemoer Van Eyden

University of Pretoria ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

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