Working Paper: NBER ID: w19336
Authors: Charles Engel
Abstract: This paper surveys recent theoretical and empirical contributions on foreign exchange rate determination. The paper first considers monetary models under uncovered interest parity and rational expectations. Then the paper considers deviations from UIP/rational expectations: foreign exchange risk premium, private information, near-rational expectations, and peso problems.
Keywords: Exchange Rates; Interest Parity; Monetary Models
JEL Codes: F31; F41; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| domestic to foreign short-term interest differential (i_t - i_t) (F21) | appreciation of the home currency (F31) |
| expected excess return on foreign deposits (o_t) (F31) | appreciation of the home currency (F31) |
| contraction in monetary policy (E52) | real appreciation (D46) |