This dissertation investigates the interaction between exchange rates and other important macroeconomic variables. The first chapter examines whether macroeconomic fundamental variables possess predictive power for the cyclical and trend movements in the exchange rate. Forecast comparisons based on the nonparametric direction of change criterion and the mean squared forecast path suggest that fundamental-based models, especially models that incorporate Taylor rule fundamentals, significantly outperform the random walk at the business cycle and trend frequencies for major currencies vis-a-vis the U.S. dollar over the recent floating era.;The second chapter, a joint paper with Oscar Jorda, and Alan M. Taylor, uses panel-data techniques on a broad collection of countries to investigate the long-run properties of the PPP/HBS equilibrium using novel local projection methods for cointegrated systems. These semi-parametric methods isolate the long-run behavior of the data from contaminating factors such as frictions not explicitly modeled and thought to have effects only in the short-run. Absent the short-run effects, we find that the estimated speed of reversion to long-run equilibrium is much higher. In addition, the HBS effects means that the real exchange rate is converging not to a steady mean, but to a slowly to a moving target. The common failure to properly model this effect also biases the estimated speed of reversion downwards. Thus, the so-called "PPP puzzle" is not as bad as we thought.;The third chapter is concerned with the impact of exchange rate misalignment on economic growth. Using local projections, I find that for countries boasting sustained high growth, undervaluation has a persistent boosting effect on economic growth. In contrast, undervaluation shocks result in statistically insignificant responses in economic growth for a panel of OECD countries with high income and low growth. These findings indicate that undervaluation contributes greatly to the sustained high growth achieved by a dozen of developing economies since World War II, but it alone does not guarantee economic growth.