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

Sercu and Uppal examine volatility of exchange rates in the context of dynamic general equilibrium models.

Piet Sercu (Author), Raman Uppal (Author)

9780521562942, Cambridge University Press

Hardback, published 19 June 2000

174 pages, 3 b/w illus. 10 tables
23.8 x 16 x 1.8 cm, 0.39 kg

'Explaining the volatility of nominal and real exchange rates is at the heart of international macroeconomics. Sercu and Uppal have done a great job of expositing some of the frontier work in this area. They build intuition with simple models and then deftly analyze the empirical implications. This book is a must read for all economists interested in exchange rates.' Patrick Kehoe, Federal Reserve Bank of Minneapolis

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.

Acknowledgements
Guide to notation
1. Introduction and overview
2. Modeling exchange rates: a survey of the literature
3. A simple general-equilibrium model of an international economy
4. The spot exchange rate in a large class of general-equilibrium models
5. Forward exchange rates in a model with segmented goods markets
6. International trade flows, exchange rate volatility and welfare
7. International capital flows and welfare
8. Tariff policy with international financial markets
9. Endogenous monetary policy and the choice of exchange rate regime
10. Concluding thoughts
References
Author index
Subject index.

Subject Areas: Macroeconomics [KCB]