Chapter 8

Exchange Rates and Interest Parity*

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

Abstract

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.

Keywords

Exchange rates

Uncovered interest parity

Foreign exchange risk premium

JEL classification codes

F31

F41

Exchange Rates and Interest Parity

This chapter surveys empirical and theoretical research ...

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