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Exchange Rate Volatility, Trade, and Capital Flows under Alternative Exchange Rate Regimes

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  • Sercu,Piet
  • Uppal,Raman
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    Abstract

    Recent years have seen a substantial increase in the volatility of exchange rates. This trend has prompted economists and finance analysts to question if the observed behaviour of exchange rates is consistent with a rational model. Does that volatility hinder trade? What are financial markets' effects on countries' investment decisions, and how would changes in fixed exchange rates affect growth and welfare? What are the requirements to make such changes feasible? Professors Sercu and Uppal examine these issues in the context of dynamic general equilibrium models, explicitly considering the role of financial markets while allowing for commodity markets to be segmented across countries. They show that the theoretical models for exchange rates in this context are quite different from those put forth by monetary theorists and proponents of purchasing power parity arguments.

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    Bibliographic Info

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    This book is provided by Cambridge University Press in its series Cambridge Books with number 9780521562942 and published in 2000.

    Order: http://www.cambridge.org/uk/catalogue/catalogue.asp?isbn=9780521562942
    Handle: RePEc:cup:cbooks:9780521562942

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    Web page: http://www.cambridge.org

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    Cited by:
    1. Anna Pavlova & Roberto Rigobon, 2007. "Asset Prices and Exchange Rates," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1139-1180.
    2. César A. Calderón, 2004. "Real exchange rates in the long and short run: a panel co-integration approach," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 19(2), pages 41-83, December.
    3. César Calderón & Roberto Duncan, 2003. "Purchasing power parity in an emerging market economy: a long- span study for Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 103-132, June.
    4. Pavlova, Anna & Rigobon, Roberto, 2011. "International Macro-Finance," CEPR Discussion Papers 8218, C.E.P.R. Discussion Papers.
    5. Buss, Adrian, 2013. "Capital controls and international financial stability: a dynamic general equilibrium analysis in incomplete markets," Working Paper Series 1578, European Central Bank.
    6. Calderon, Cesar & Kubota, Megumi, 2009. "Does higher openness cause more real exchange rate volatility ?," Policy Research Working Paper Series 4896, The World Bank.
    7. Margarida Duarte & Alan C. Stockman, 2001. "Rational Speculation and Exchange Rates," NBER Working Papers 8362, National Bureau of Economic Research, Inc.
    8. Alexander Mihailov, 2004. "Effects of the exchange-rate regime on trade: the role of price setting," Money Macro and Finance (MMF) Research Group Conference 2003 66, Money Macro and Finance Research Group.
    9. Alexander Mihailov, 2004. "When and How Much Does a Peg Increase Trade? The Role of Trade Costs and Import Demand Elasticity under Monetary Uncertainty," Levine's Bibliography 122247000000000203, UCLA Department of Economics.
    10. BAAK, SaangJoon, 2008. "The bilateral real exchange rates and trade between China and the U.S," China Economic Review, Elsevier, vol. 19(2), pages 117-127, June.

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