Chapter 8

Exchange Rates and Interest Parity*

Charles Engel,    University of Wisconsin, Madison, WI, USA, National Bureau of Economic Research, Cambridge, MA, USA


This chapter surveys recent theoretical and empirical contributions on foreign exchange rate determination. The chapter first examines monetary models under uncovered interest parity and rational expectations, and then considers deviations from UIP/rational expectations: foreign exchange risk premium, private information, near-rational expectations, and peso problems.


Exchange rates

Uncovered interest parity

Foreign exchange risk premium

JEL classification codes



Exchange Rates and Interest Parity

This chapter surveys empirical and theoretical research ...

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