Pablo Rovira Kaltwasser

• National Bank of Belgium

According to the commodity currency hypothesis (CCH), a country’s commodity-export prices are predicted by its exchange rate. We investigate two types of aggregation biases that might affect CCH tests. First, monthly commodity prices are sometimes averaged across all days of the month, a practice that creates substantial spurious predictability in...

Chen et al. (2010) report that for ‘commodity currencies’, the exchange rate predicts the country’s commodity index but not vice versa. The commodity currency hypothesis is consistent with the Engel and West (2005) exchange rate model if the fundamental is chosen to be the country’s key export prices and if the latter are exogenous to the exchange...

This book provides an alternative view of the workings of foreign exchange markets. The authors' modeling approach is based on the idea that agents use simple forecasting rules and switch to those rules that have been shown to be the most profitable in the past. This selection mechanism is based on trial and error and is probably the best possible...

It is traditionally assumed in finance models that the fundamental value of an asset is known with certainty. In this paper we depart from that assumption. We propose a simple model of the exchange rate in which agents have biased and unbiased beliefs about the fundamental rate. We show that such a model produces waves of optimism and pessimism unr...

It is traditionally assumed in finance models that the fundamental value of assets is known with certainty. Although this is an appealing simplifying assumption it is by no means based on empirical evidence. A simple heterogeneous agent model of the exchange rate is presented. In the model, traders do not observe the true underlying fundamental exc...

It is traditionally assumed in finance models that the fundamental value of an asset is known with certainty. In this paper we argue that this is an appealing sim-plifying assumption but it is undoubtedly not based on empirical evidence. We offer a simple theoretical model of the exchange rate in which agents dispose of biased estimates of the unde...

This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capit...

In this paper we model how the existence of different beliefs about the underlying fundamental value of a currency affects the dynamics of the exchange rate. We find that a divergence of beliefs creates the potential for waves of optimism and pessimism that alternate in an unpredictable way. These waves are disconnected from the underlying (objecti...

This paper analyzes the role of bank capitalization on the transmission of monetary policy, using a quarterly dataset for Austrian banks spanning from 1997 to 2003. A substantial understanding of the transmission mechanism in different countries of the euro zone is not only of academic interest, but also an important prerequisite for central banker...

This paper presents a behavioral finance model of the exchange rate. Agents forecast the exchange rate by means of very simple rules. They can choose between three groups of forecasting rules: fundamentalist, extrapolative and momentum rules. Agents using a fundamentalist rule are not able to observe the true value of the fundamental exchange and t...