Studien Zu Internationalen Wirtschaftsbeziehungen – serie

Traditional exchange rate modeling is in crisis. Fundamentals cannot explain exchange rates. Models using solely macro variables are bound to fail empirically, since they do not capture what is happening on foreign exchange markets. The question about the inner life of these markets arises. Since the middle of the 1990s, there is now an empirically motivated approach to exchange rates, based on the analysis of order flows. Foreign exchange market microstructure addresses the trading process and corresponding aspects of foreign exchange dealing. Analyses of order flows have become a promising field of research as cumulated flows are closely related to exchange rate movements. This investigation is made up of four related studies in the spirit of this new microstructure approach. It contributes to the existing literature by extending our knowledge of microstructure effects in the decision-making of foreign exchange dealers.

Recent developments in international economics have resulted in a research agenda labelled as the «New Open Economy Macroeconomics» (NOEM). This book provides a description of the baseline model and discusses open questions in the literature. Two price setting assumptions can be distinguished, the producer currency price setting and the local currency price setting with crucial difference according to the transmission process. The study examines the presence of either price setting assumptions on an empirical basis, the analysis of German exporters and the reaction of import prices in response to exchange rate changes. Finally the traditional NOEM model structure is enriched by introducing foreign direct investment effects.

Since the launch of the euro in 1999, researchers, policy makers, and business analysts have put great interest in the evolution of the external value of the euro. In 2004 the European Monetary Union expanded its membership with the accession of ten countries from central and eastern Europe and the Mediterranean. As these countries are committed to adopt the euro as soon as they fulfill the Maastricht criteria, knowing their currencies’ equilibrium value is of great policy interest. This study addresses these questions by deriving equilibrium exchange rate paths for the euro and for the currencies of the new EU member countries. Specifically, one part investigates in how far variations in seven bilateral nominal euro exchange rates can be explained by monetary factors and then estimates the equilibrium path of the real effective exchange rate of the euro based on the NATREX approach. The final chapters derive equilibrium exchange rate paths for the currencies of the Czech Republic, Hungary, Poland, Slovenia, Slovakia, and the three Baltic countries using a small country version of the NATREX model.