Revisiting Exchange Rate Puzzles

Abstract

Engel and Zhu (2017) revisit a number of major exchange rate puzzles and conduct empirical tests to compare the behaviour of real exchange rates among pairs of economies that have rigidly fixed nominal exchange rates with their behaviour among pairs of economies under floating rates. They find that some of these puzzles become less puzzling for countries within the euro area, and regions in China and Canada, than for the non-euro-area OECD economies. Their results may have implications for exchange rate modelling.

Full Publication: The Price, Real and Financial Effects of Exchange Rates

Keywords: consumption correlation puzzle; excess volatility, exchange rate disconnect, exchange rate regime, real exchange rate, purchasing power parity, uncovered interest rate parity

JEL Classification: E43, F31