Barbara Sadaba is a Senior Analyst in the International Economic Analysis Department at the Bank of Canada. Her research interests lie in the fields of applied Macroeconomics and Econometrics. She focuses on studying the hidden drivers of asset prices in International Financial Markets using time-series state-space models in both frequentist and Bayesian approaches. Barbara received her PhD in Economics from Erasmus University Rotterdam and the Tinbergen Institute in The Netherlands.
This paper presents a new testing method for the scapegoat model of exchange rates that aims to tighten the link between the theory on scapegoats and its empirical implementation. This new testing method consists of a number of steps.
Increased sovereign credit risk is often associated with sharp currency movements. Therefore, expectations of the probability of a sovereign default event can convey important information regarding future movements of exchange rates.