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Originally published in 1982. This book deals with exchange-rate determination and the implications of floating rate regimes for the time paths of prices and quantities. It develops a class of stochastic equilibrium models of the open economy operating under flexible exchange rates, assuming that agents are endowed with rational expectations but do not possess full current information as to the state of the world. Chapters look at a model’s response to economic disturbances, the effect on non-traded goods, and cyclical variations of the terms of trade. The final chapter considers a model to investigate purchasing parity issues.
These essays review recent advances in exchange rate analysis and new empirical analysis of the behavior of exchange rates and their effects on international trade and the U.S. economy. The first section deals with the determination of exchange rates and their alleged volatility and disequilibrium levels. The second section concerns the effects of flexible exchange rates on international trade, and the third treats the macroeconomic linkages between economies and international influences on the U.S. economy. ISBN 0-88410-948-8 : $39.95.
These twelve essays take up economic management under flexible exchange rates in the presence of uncertainty. Nearly all of the contributions adopt a rational expectations framework, focusing on the stochastic aspects of the assumption and exploring the variability of, for example, output and prices in relation to the variability of various external disturbances.Jagdeep Bhandari is Associate Professor of International Economics at West Virginia University.
In the second essay presented in Chapter III, I explain the failure of UFRH based on the argument of existence of time-varying risk premium. I investigate the pricing of forward contracts in the context of conditional international asset pricing models. In contrast to much of this previous work, I consider generalizations in two important dimensions. First, the international asset pricing model (IAPM) is specified in a conditional environment. Second, in this chapter I treat the pricing of forward contracts in a framework that allows for more than one source of risk. The strongest support to the model's restrictions comes from using a set of country-specific variables in a two-factor setting. This implies that, in the forward exchange market, the exchange, rate risk is an important factor. Furthermore, the evidence supports the idea that deviations from the expected future spot rate are due to a risk premium.