Asset Prices, News Shocks and the Current Account,  Co-author: R. Straub, CEPR Discussion Paper No. 8080, October 2010 . Main point: News/asset price shocks exert sizeable yet highly heterogeneous effects on the current account positions of countries. This heterogeneity is linked to the financial market depth and equity home bias of countries via wealth effects and the real exchange rate.

Monetary Policy Shocks and Portfolio Choice,  co-authors: C. Saborowski and R. Straub, CEPR Discussion Paper No. 8099, November 2010 Main point: The effect of US monetary policy shocks on capital flows induces a negative conditional correlation between flows in equities and bonds, a negative conditional correlation between equity flows and equity returns (portfolio rebalancing), but a positive conditional correlation between bond flows and bond returns (akin to a return chasing motive).

Convergence and anchoring of yield curves in the euro area,  Co-authors: M. Ehrmann, R. Gürkaynak and E. Swanson, Review of Economics and Statistics February 2011, 93(1): 350–364, Feb 2011. Main point: Prior to the crisis, EMU had led to a substantial convergence in euro area sovereign bond markets in terms of interest rate levels and conditional daily fluctuations, as well as in the anchoring of long-term inflation expectations. This underlines not only market integration but also the credibility that financial markets attach to monetary policy in the euro area.

Political economy of monetary union: has EMU made a difference?  Co-author: L. Stracca, Economic Policy 58 307-48, April 2009 Main point: EMU has reduced the impact of political shocks on the domestic economy of members but magnified the transmission of political shocks within the euro area. A drawback is that this provides weaker market discipline for ensuring domestic political stability.

Asset prices, exchange rates and the current account,  Co-authors: L. Juvenal and L. Sarno, European Economic Review, 54, 643–658, June 2010. Main point: Equity market shocks and housing price shocks have been major determinants of the US current account, accounting for up to 32% of the movements of the US trade balance, while shocks to the real exchange rate have been much less relevant. This implies that relative global asset price changes could be a potent source of an adjustment of global imbalances in the future.

Productivity shocks, budget deficits and the current account,  Co-authors: M. Bussiere and G. Mueller, ECB Working Paper No. 509, Journal of International Money and Finance 29(8): 1562-1579, July 2010. Main point: For 21 OECD countries since 1960, we find a small effect of fiscal policy on the current account (elasticity of 0.1-0.2), while country-specific productivity shocks appear to play a key role for the current account dynamics.

Asset prices and current account fluctuations in G7 countries,  Co-author: R. Straub, IMF Staff Papers 56(3), 633-54, June 2009. Main point: Asset price movements in the US exert a significant effect on the competitiveness of G7 countries, in particular in countries such as the US which has sophisticated, large and deep financial markets.

Capital account liberalisation, uncertainty and debt structure,  Co-authors: M. Bussiere and W. Koeniger, The B.E. Journals in Macroeconomics Vol. 6(1): Article 5, March 2006. Main point: Currency mismatches exacerbate maturity mismatches and raise real volatility in the economy, in particular in the presence of economic or political uncertainty and solvency constraints.

Financial openness and growth: short-run gain, long-run pain?  Co-author: M. Bussiere, Review of International Economics, 16(1), 69–95, 2008. Main point: The paper shows that a key reason for the elusive evidence for a positive relationship between financial openness and economic growth is its time-varying nature: countries tend to gain in the short-term, immediately following capital account liberalisation, but may not grow faster or even experience temporary growth reversals in the medium- to long-term.

Current account dynamics in OECD and new EU member states: An intertemporal approach,  Co-authors: M. Bussiere  and G. Mueller, Journal of Economic Integration 21(3): 593-618, September 2006. Main point: The paper proposes and tests a framework to link the current account with fiscal policy in the presence of habit persistence and liquidity constraints.

International Finance

Capital Flows, Push versus Pull Factors and the Global Financial Crisis , prepared for the NBER-Sloan project on the Global Financial Crisis, forthcoming Journal of International Economics. Main point: The sudden stop of capital flows to EMEs during the 2007-08 crisis and the subsequent surge in flows are not just due to common, global shocks, but to an important extent explained by pull factors specific to EMEs.

Testing the scapegoat model of exchange rates , (with L. Sarno & G. Zinna), CEPR No. Discussion Paper 8812, February 2012. Main point: The empirical test of the scapegoat theory of exchange rates (Bacchetta and van Wincoop 2004, 2011) shows that market participants indeed at times attach more weight to some fundamentals, in turn exerting significant effects on actual FX movements.

Global crises and equity market contagion, Co-authors: G. Bekaert, M. Ehrmann and A. Mehl, NBER Working Paper no. 17121, revise and resubmit  Journal of Finance . Main point: Contagion in the 2007-09 financial crisis was not global but mainly domestic in nature, affecting countries with poor institutions and fundamentals (rather than those with open markets and external exposure).

How successful is the G7 in managing exchange rates? Journal of International Economics 79(1): 78-88, September 2009. Main point: The paper presents evidence that the G7 has been remarkably successful in managing global exchange rates since the 1970s. This success crucially depends on the G7’s reputation and credibility and its ability to form a consensus.

What Explains Global Exchange Rate Movements During the Financial Crisis? Journal of International Money and Finance 28: 1390–1407, December 2009. Main point: The collapse of currencies globally during the 2007-09 crisis is mainly explained by low FX reserves, weak current account positions and high direct financial exposure vis-à-vis the United States.

Risk sharing, finance and institutions in international portfolios, Co-author: J. Imbs, CEPR Discussion Paper No. 6496, Journal of Financial Economics 94: 428–447, December 2009. Main point: International consumption risk sharing is significantly improved by capital flows, especially portfolio investment. Poor institutions hamper risk sharing, but to an extent that decreases with openness.

Do China and oil exporters influence major currency configurations?Co-author: A. Mehl, Journal of Comparative Economics 37, 335–358, September 2009. Main point: Major emerging economies, such as China and oil exporters, have had a significant effect on the euro-US dollar and yen-US dollar exchange rates when communicating intentions to weaken their US dollar pegs or diversify reserves.

Oral interventions versus actual interventions in FX markets -  An event-study approach,  Economic Journal, 118, 1–28, July 2008. Main point: Communication and interventions by euro area, US and Japanese monetary authorities have been successful in managing exchange rates over the short- to medium-term, mainly through a coordination channel consistent with recent microstructure models.

US shocks and global exchange rate configurations,  Economic Policy, April 2008, 363–409. Main point: Global exchange rate adjustment over the past two decades has mainly been driven by business cycle synchronization and financial integration – but not by trade, with key implications for an unwinding of global imbalances.

The pecking order of international financial integration, Co-author: C. Daude, Journal of International Economics 74(1), 94-119, 2008. Main point: Cross-border flows in FDI and bank loans are substantially more sensitive to information frictions than portfolio equity and debt securities, while portfolio investment is by far the most sensitive to the quality of institutions.

Stocks, bonds, money markets and exchange rates: Measuring international financial transmission, Co-authors: M. Ehrmann  and R. Rigobon, NBER Working Paper No. 11166, March 2005, forthcoming, Journal of Applied Econometrics. Main point: The paper presents a new framework for analyzing global financial linkages. It underlines the dominance of US markets, yet the advent of EMU has reduced this US dominance somewhat.

Communication and exchange rate policy,  Journal of Macroeconomics, 30(4), 1651-1672, December 2008. Main point: Communication by monetary authorities is effective in influencing the US dollar-euro and yen-US dollar exchange rates. Communication is effective independently from monetary policy, indicating that it may constitute a largely autonomous policy tool.

The transmission of emerging market shocks to global equity markets, Co-authors: L. Cuadro and C. Thimann, forthcoming, Journal of Empirical Finance 16(1): 2-17, January 2009. Main point: Shocks emanating from emerging economies have a statistically and economically significant impact on global equity markets, with the effect being just as strong in “good” times as in “bad” times, i.e. during crises or periods of financial turbulence.

Financial globalization and integration, Co-author: Philipp Hartmann, Journal of International Money and Finance 26: 495-99, June 2007.

Home bias in global bond and equity markets: the role of real exchange rate volatility,  Co-authors: M. Fidora  and C. Thimann, Journal of International Money and Finance 26: 631-55, June 2007. Main point: Real exchange rate volatility is a key driver of international portfolio home bias, with a reduction of volatility from its sample mean to zero reduces the home bias in bonds by up to 60 percentage points and in equities by 20 percentage points.

On the long-term effectiveness of exchange rate communication and interventions,  Journal of International Money and Finance 25(1): 146-67, February 2006. Main point: Actual interventions and communication in FX markets are successful in moving exchange rates over the medium- to long-run, independent of the methodology applied (time-series or event-study approaches).

Strategies of exchange rate policy in G3 economies,  Economics Letters,   89(1): 68-74, October 2005.

Main point: Policy-makers in major advanced economies no longer use actual interventions to manage exchange rates, but have adopted sophisticated and diverse communication strategies.

Equal size, equal role? Interest rate interdependence between the euro area and the United States,  Co-author: M. Ehrmann, Economic Journal 115: 930-50, October 2005. Main point: The degree of financial market interdependence between the United States and the euro area has increased with EMU. The euro area has become more influential, yet US macroeconomic news remain good leading indicators for the euro area.

Exchange rates and fundamentals: new evidence from real-time data,  Co-author: M. Ehrmann, Journal of International Money and Finance 24: 317-41, March 2005. Main point: US macroeconomic news are powerful in explaining short- to medium-term developments in FX markets. This is explained in part by the importance of the US economy but also in part by the earlier and more timely release of relevant US news.

Financial Market Integration in Europe: On the Effects of EMU on Stock Markets, International Journal of Finance and Economics, 7(3): 165-194, July 2002. Main point: EMU has had a major impact on financial market integration in Europe. The euro area market has taken over from the US as the dominant market in Europe, in particular due to the elimination of exchange rate volatility and uncertainty.

Monetary Policy

Politics and Monetary Policy,  Co-author:  M. Ehrmann, forthcoming  Review of Economics and Statistics. Main point: The paper analyses how and why politicians’ preferences about monetary policy differ from the interest rates set by the ECB, highlighting as explanations the different preferences about inflation and output, the importance of political economy motives for politicians, and the national rather than euro area perspective of politicians.

The role of central bank transparency for guiding private sector forecasts,  Co-authors:  M. Ehrmann  and S. Eijffinger, forthcoming Scandinavian Journal of Economics. Main point: Central bank transparency lowers dispersion among professional forecasters of key economic variables, e.g. by announcing a quantified inflation objective, or by publishing inflation and output forecasts. However, there are decreasing marginal effects to increases in transparency, pointing to possible limits to transparency.

Central bank communication and monetary policy: A survey of the evidence Co-authors:  Alan Blinder, M. Ehrmann, J. de Haan, D.-J. Jansen, Journal of Economic Literature XLVI(4), 910-45, December 2008. Main point: A survey and assessment of the literature on central bank communication – showing that communication can be an powerful part of the central bank's toolkit, enhance the predictability of policy decisions, and help achieve macroeconomic objectives. However, a consensus has yet to emerge on what constitutes an optimal communication strategy.

Purdah – On the Rationale for Central Bank Silence Around Policy Meetings,  Co-author: M. Ehrmann, Journal of Money, Credit and Banking 41(2–3), 517-27, April 2009. Main point: The paper assesses the purdah – a self-imposed guideline of abstaining from communication around important events – . confirming that financial markets are substantially more sensitive around policy meetings, providing insights about the limits to central bank transparency.

Social value of public information – testing the limits to transparency,  Co-author: M. Ehrmann, ECB WP No. 821, October 2007. Main point: The paper tests empirically, for the case of the Federal Reserve, two hypotheses about central bank transparency derived from the debate of Morris and Shin (2002) and Svensson (2006). It empirically underlines the limits to transparency.

Explaining monetary policy decisions in a press conference,  Co-author: M. Ehrmann, International Journal of Central Banking 5(2): 41-84, June 2009. Main point: For the ECB, the paper shows that ECB press conferences provide substantial new information to financial markets beyond that contained in the policy decisions, with additionally the Q&A part fulfilling a clarification role, in particular during periods of large macroeconomic uncertainty.

Communication and decision-making by central bank committees: different strategies, same effectiveness? Co-author: M. Ehrmann, Journal of Money, Credit and Banking 39(2–3): 509-41, March- April 2007. Main point: The paper assesses empirically the communication strategies of the Federal Reserve, the Bank of England and the European Central Bank and their effectiveness. It finds that there is not a single best approach to designing a central bank communication and decision-making strategy, which depends on the institutional environment and the structure of the economy.

Geography or skills: What explains Fed watchers’ forecast accuracy of US monetary policy? Co-authors: H. Berger and M. Ehrmann, forthcoming Journal of Macroeconomics. Main point: There is a substantial degree of heterogeneity in forecast accuracy among Fed watchers, which is related to the geographic location of the analysts, and leads to greater financial market volatility of Fed policy decisions.

Monetary policy in the media, Co-authors: H. Berger and M. Ehrmann, forthcoming Journal of Money, Credit and Banking. Main point: The media coverage of ECB policy decisions is highly responsive to ECB communication – in particular its Press Conference on meeting days. However, clear limitations in this regard underline the critical monitoring role assumed by the media.

Global financial transmission of monetary policy shocks, Co-author: M. Ehrmann, Oxford Bulletin of Economics and Statistics 71(6), 739-60. Main point: US monetary policy has a large effect on global equity markets, partly via US and foreign short-term interest rates and the exchange rate. Macroeconomic policies and the degree of global integration of countries are key for the transmission process.

Forecasting ECB monetary policy: Accuracy is (still) a matter of geography, Co-authors: H. Berger and M. Ehrmann, European Economic Review  53(8): 1028-1041, November 2009. Main point: We find remarkable differences in forecast accuracy of ECB decisions among market participants, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking. In large part this heterogeneity can be traced to differences in forecasting models.

The timing of central bank communication, Co-author: M. Ehrmann, European Journal of Political Economy 23(1): 124-145, March 2007. Main point: Central bank communication is generally seen as a tool to prepare markets for upcoming decisions, and markets indeed react more strongly to communication prior to policy changes.

Transparency, disclosure and the Federal Reserve, Co-author: M. Ehrmann, International Journal of Central Banking 3(1): 179-225, March 2007. Main point: This paper assesses the change in Federal Reserve transparency policy in 1999, showing that markets anticipated monetary policy decisions equally well under the new disclosure regime than before, but arrived at their expectations in different ways.

Taking stock: Monetary policy transmission to equity markets, Co-author: M. Ehrmann, Journal of Money, Credit and Banking, 36(4): 719-37. Main point: A US monetary policy tightening of 50 basis points reduces returns by about 3%.There are strong industry-specific effects of US monetary policy, with firms those with low cashflows, small size, poor credit ratings, low debt to capital ratios, high price-earnings ratios or high Tobin's q being affected significantly more.

Monetary policy announcements and money markets: A transatlantic perspective, Co-author: M. Ehrmann, International Finance 6(3), Winter 2003-04: 309-28.

Main point: Analysing financial market integration since EMU, we find evidence that euro area and US markets not only have become more interdependent, but that markets’ understanding and anticipation of monetary policy decisions have improved over time.

Development, institutions and financial crises

Does it pay to have the euro? Italy’s troubled politics and financial markets under the lira and the euro, Co-author: L. Stracca, International Finance 12:1, 1–31, 2009. Main point: The paper focuses on political events in Italy over the past 35 years and shows that the introduction of the euro has played a major role in insulating Italy’s financial markets from such adverse shocks, suggesting the presence of a political economy channel of EMU.

Towards a new Early Warning System of financial crises, Co-author: M. Bussiere, Journal of International Money and Finance  25(6): 953-973, October 2006. Main point: The paper develops a new Early Warning System (EWS) model for predicting financial crises, solving for what we call a post-crisis bias and showing that the model constitutes a substantial improvement in the ability to forecast financial crises.

Low probability, high impact: policy making and extreme events, Co-author: M. Bussiere, Journal of Policy  Modeling 30: 111–121, 2008. Main point: We show how the optimal design of an Early Warning System (EWS) for policy makers focuses on the choice of three parameters: the degree of risk aversion, the forecast horizon of the model, and the probability threshold for extracting warning signals.

European Integration: What lessons for other regions? The case of Latin America, Co-authors: E. Dorrucci, S. Firpo, and F. Mongelli, Open Economies Review 15: 239-269, July 2004. Main point: We present an original indicator of institutional integration in Europe and study how it developed vis-à-vis diverse measures of economic integration. We analyse what insights can be drawn from the European process of regional integration for other regions in the world.

The Interaction between Institutional and Economic Integration at the Regional Level, Co-authors: E. Dorrucci, S. Firpo, and F. Mongelli, Journal of Economic Integration 20(2): 217-51, June 2005.

On Currency Crises and Contagion, International Journal of Finance and Economics, 8(2): 109-30, April 2003. Main point: Markov-switching and panel data models reveal that contagion was a core explanation for emerging market crises. The degree of financial interdependence is crucial for explaining past crises and in predicting the transmission of future crises.

Why are Currency Crises Contagious?  A Comparison of the Latin American Crisis of 1994-95 and the Asian Crisis of 1997, Weltwirtschaftliches Archiv/Review of World Economics, Vol. 134 No.4, December 1998.

Publications in Books, Book Reviews and Others

How should central banks communicate? (with  M. Ehrmann), "Designing a Central Bank Communication Strategy", in: D. Mayes and G. Wood (eds.), Designing Central Banks, Routledge, 2009, 170-192.

What we know and what we would like to know about central bank communication, (with Alan Blinder, M. Ehrmann, J. de Haan, D.-J. Jansen) VOX, 15 May 2008, available at

EMU has led to increased stability and convergence of financial markets in euro area, (with M. Ehrmann, R. Gürkaynak and E. Swanson) VOX, 17 September 2007, available at

Designing a Central Bank Communication Strategy (with Michael Ehrmann), Bundesbank  conference volume on Designing Central Banks.

The Impact of Exchange Rate Interventions and Communication over the Medium-Term, in: K. Liebscher  (Governor Austrian National Central Bank) et al.: Currency and Competitiveness in Europe.

Forecasting European Central Bank Monetary Policy (with Helge Berger and Michael Ehrmann), IMF Survey, 35(13), July 2006.

Exchange-rate regimes and debt-maturity structure (with M. Bussiere and W. Koeniger), International Monetary Fund: 60 Years After Bretton Woods, IMF volume of international symposium of June 2004.

Monetary Policy and Macroeconomic Stabilization in Latin America: A Comment, in R. Langhammer and L. Vinhas  de Souza (Eds.), Berlin and New York: Springer, 2005.

Exchange rate policy strategies in G3 economies. In. C. Fred Bergsten, John Williamson (eds.): Dollar adjustment: How far? Against what? Volume of conference proceedings, Institute for International Economics, Washington, D.C., 2004.

On the Causes of the Latin American and Asian Currency Crises of the 1990s, in E. Bour, D. Heymann, F. Navajas (Eds.): Latin American Economic Crises: Trade and Labour. New York: Palgrave  Macmillan, 2004: pp. 58-80.

Identifying the role of contagion in currency crises with Markov-switching models. In: M. Frenkel, A. Karmann  and B. Scholtens (eds.): Sovereign Risk and Financial Crises. Springer Verlag, Berlin, 2004.

What lessons for Latin America from European integration? (with E. Dorrucci, S. Firpo, and F. Mongelli), In: P. van der Haegen and J. Vinals (eds.): Regional Integration in Europe and Latin America: Monetary and Financial Aspects. Ashgate Publishers, 2003.

Review of “The Asian Financial Crisis. Causes, Contagion and Consequences”, by P.R. Agenor, M. Miller, D. Vines, A. Weber. Weltwirtschaftliches Archiv, Vol. 136 No.4, 2000.