Puzzles in international finance

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Chapter 2 in Controversies in Economics and Finance, 2020, pp 14-47 from Edward Elgar Publishing

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.

Keywords: Economics and Finance; Research Methods; Teaching Methods (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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