Abstract

This paper has two aims, one theoretical and the other empirical. At the theoretical level, we advance an interpretation of the apparent inability of models based on rational expectations to explain the time evolution of exchange rates. The interpretation is based on the inadequate treatment of the different time frequencies with which new information on the different variables that affect the foreign exchange markets becomes available. At the empirical level, we attempt to re-examine the effectiveness of controls on capital movements, during a period in which these were used in Italy; moreover we analyse the effectiveness of official foreign exchange interventions.