Mokoena, Thabo Mishack2008-09-302008-09-302008-07Mokoena, T, Gupta, R & Van Eyden, R 2008, 'Exchange rate puzzles: a review of the recent theoretical and empirical developments', University of Pretoria, Department of Economics, Working paper series, no. 2008-27. [http://web.up.ac.za/default.asp?ipkCategoryID=736&sub=1&parentid=677&subid=729&ipklookid=3]http://hdl.handle.net/2263/7426This paper presents a comprehensive literature review of the theoretical and empirical developments that have taken place over the last two decades in an attempt to address the exchange rate puzzles. Specifically, we discuss non-linear and Bayesian econometric techniques, Dynamic General Equilibrium models, and the Market Microstructure approach that has been designed to address three exchange rate puzzles, namely, the Purchasing Power Parity (PPP) puzzle, the exchange rate disconnect puzzle and the exchange rate determination puzzle. We conclude that the exchange rate puzzles are likely to be less puzzling, if researchers decide to move to non-linear econometric frameworks and microfounded general equilibrium models.enUniversity of Pretoria, Department of EconomicsDynamic general equilibrium modelsExchange rate puzzlesNon-linear and Bayesian econometric modelsForeign exchange ratesWorking Paper