INTERNATIONAL MACROECONOMICS AND FINANCE
Economics 510 Alan C. Stockman
0. A Few Questions:
Some Empirical Observations in Search of a Good Theory:
Some other questions:
I. INTERNATIONAL FINANCIAL MARKETS AND INTERTEMPORAL TRADE
I.1. Trade over Time (under Certainty)
Maurice Obstfeld and Kenneth Rogoff, Foundations of International Macroeconomics, chs. 1-2
basic issues and models -- much of the material in chs 1-2 will be a review from your basic macro courses
* Obstfeld, M. and K. Rogoff, ""The Intertemporal Approach to the Current Account,"in Handbook of International Economics vol. 3, Gene Grossman and Kenneth Rogoff (eds.), (Amsterdam: Elsevier Science Publishers B.V., 1995): 1731-99. sections 1 - 3.1.
Torsten Persson and Lars Svensson, "Current Account Dynamics and the Terms of Trade: Harberger-Laursen-Metzler Two Generations Later, Journal of Political Economy 93, 1985, 43-65.
example of current account dynamics in a simple small-country model
Feldstein, M. and C. Horioka, "Domestic Saving and International Capital Flows," Economic Journal 90, 1980.
* Linda Tesar, "Savings, Investment, and International Capital Flows," Journal of International Economics 31 No. 1/2, August 1991, 55-78.
the evidence on the "Feldstein-Horioka puzzle" (which is still a puzzle of sorts, by the way)
Michael B. Devereux and Shouyong Shi, "Capital Accumulation and the Current Account in a Two-Country Model," Journal of International Economics 30 No. 1/2, February 1991, 1-26.
current-account dynamics with endogenous time-preference (Epstein-Zin utility)
I.2. Trade across States of Nature (International Financial Markets in the Presence of Uncertainty)
* Obstfeld and Rogoff, "The Intertemporal Approach to the Current Account," sections 3.2-5.
* Bernard Dumas, "Partial-Equilibrium vs. General-Equilibrium Models of Capital Market Equilibrium," in Van Der Ploeg, F. (ed.) The Handbook of International Macroeconomics, Cambridge Ma: Basil Blackwell, 1994.
Lars E. O. Svensson, "Trade in Risky Assets," American Economic Review 78 No. 3, June 1988, 375-94
proof of gains from trade in risky assets that (almost) mimics standard trade theory
* Alan C. Stockman and Harris Dellas, "Tariffs, Asset Markets, and Political Risk,", Journal of International Economics 21, November 1986, 199-214.
the ability to trade on international financial markets drastically changes the effects of tariffs; standard textbook comparative statics exercises give the wrong answer!
David Backus, "Interpreting Comovements in the Trade Balance and the Terms of Trade," Journal of International Economics, 1993. $$$
they're both endogenous, folks, and comparative statics is misleading in stochastic models
Michael B. Devereux and Khang Min Lee, "Endogenous Trade Policy and the Gains from International Financial Market," working paper, UBC, January 1997
ytr
Harold Cole, "Financial Structure and International Trade," International Economic Review, 1987.
effects of shutting down certain international financial markets
Gene M. Grossman and Assaf Razin, "The Pattern of Trade in a Ricardian Model with Country-Specific Uncertainty," International Economic Review 26, No. 1, February 1985.
how international financial markets (or their absence) can affect output and trade
* Avinash Dixit, "Trade and Insurance with Moral Hazard," Journal of International Economics 23 no 3/4, November 1987, 201-20.
nice example of why modeling private-information problems that affect financial markets can lead to different answers than shutting down markets arbitrarily
Alan C. Stockman, "On the Roles of International Financial Markets and Their Relevance for Economic Policy," Journal of Money, Credit, and Banking 20, vol 3, August, 1988, 531-49.
a selective summary of results on equilibrium models of open-economy macro
* Harold L. Cole and Maurice Obstfeld, "Commodity Trade and International Risk Sharing: How Much do Financial Markets Matter?" Journal of Monetary Economics, August 1991, 3-24.
gains from trade in int. financial markets are small in some models if utility is "close" to Cobb-Douglas; some key results in this paper were obtained earlier by Harris Dellas
S. Lael Brainard, "Protecting Losers: Optimal Diversification, Insurance, and Trade Policy," NBER Working Paper #3773, 1992.
effects of nondiversifiable human capital and how the government can help
Tamin Bayoumi and Joseph Gagnon, "Taxation and Inflation: a New Explanation for Current-Account Imbalances," International Finance Discussion paper no. 420, Board of Governors of the Federal Reserve System, 1992.
how inflation and the tax system interact to affect the current account
Backus, D. P. Kehoe and F. Kydland (1994) "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve", American Economic Review.
Evidence
French, K. and J. Poterba, "Investor Diversification and International Equity Markets," American Economic Review 81, 221-226, 1991.
Lewis, K., "Puzzles in International Financial Markets," in Gene Grossman and Kenneth Rogoff (eds.), Handbook of International Economics vol. 3, (Amsterdam: Elsevier Science Publishers B.V., 1995).
Lewis, K., "What Can Explain the Apparent Lack of International Consumption Risk-sharing?" Journal of Political Economy 104, April, 1996, 267-97.
* Obstfeld, M. "International Capital Mobility in the 1990s," in Peter B. Kenen (ed.), Understanding Interdependence: The
Macroeconomics of the Open Economy, Princeton University Press, 1995.
Obstfeld, M., "Are Industrial-Country Consumption Risks Globally Diversified?" in Leonardo Leiderman and Assaf Razin, eds., Capital Mobility: the Impact on Consumption, Investment, and Growth, Cambridge: Cambridge University Press, 1994.
Obstfeld, M. "Evaluating Risky Consumption Paths: The Role of Intertemporal Substitutability," European Economic
Review, 1994.
* Tesar, L., "Evaluating the Gains from International Risksharing," Carnegie-Rochester Conference
Series on Public Policy 42, June 1995, 95-142
* Tesar, L, and I. Werner, "Home Bias and High Turnover," Journal of International Money and Finance 14,
August, 1995, 467-92.
van Wincoop, E., "Welfare Gains from International Risksharing: The Role of Nontraded Goods," Journal of Monetary Economics 34, October 1994, 175-200.
Baxter, M. and U. Jermann (1995) "The International Diversification Puzzle is Worse than You Think", NBER W.P. No.5019, February.
Baxter, M., U. Jermann and R. King (1995) "Non-Traded Goods, Non-Traded Factors and International Non-Diversification Puzzle", NBER W.P. No. 5175, July.
F. Canova and M. O. Ravn, "International consumption risk sharing," International Economic Review, forthcoming.
* Devereux M. and G. Smith, "International Risksharing and Economic Growth," Queens University Discussion Paper
no. 829, 1991.
Obstfeld, M., "Risk-Taking, Global Diversification and Growth," AER December 1994..
I.3. International Transmission of Technology Shocks and Business Cycles: Real Models
Kerk Phillips, "A Two-Country Model of Stochastic Output with Changes in Regime," Journal of International Economics 31 No. 1/2, August 1991, 121-42.
uses a bivariate extension of Hamilton's Markov-switching model to see whether some countries lead others into or out of recessions
Alan C. Stockman, "Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries," Journal of Monetary Economics, March/May, 1988, 387-410.
there are big nation-specific shocks to output that affect all industries, as well as industry-specific shocks that affect all nations
Donna Costello, "A Cross-Country, Cross-Industry Comparison of the Behavior of Solow Residuals," Journal of Political Economy, 1993.
nation-specific as well as industry-specific Solow residuals
Harris Dellas, "A Real Model of the World Business Cycle," Journal of International Money and Finance 5, September 1986, 381-94.
Long and Plosser in a multi-nation world
* Enrique Mendoza, "Real Business Cycles in a Small Open Economy: The Canadian Case," American Economic Review, 1991
the first published calibrated open-economy RBC model: a small country with terms of trade shocks
Petter Lundvik, "Business Cycles in a Small Open Economy: Sweden 1871-1987," IIES 1990.
a small country RBC model
* Backus, David K., Patrick J. Kehoe, and Finn E. Kydland, "International Real Business Cycles," Journal of Political Economy, 1992.
a two-country, one-sector model with roots in Kydland and Prescott
* Backus, D. P. Kehoe and F. Kydland, "Relative Price Movements in Dynamic General Equilibrium Models of International Trade", Chapter 3 in Van Der Ploeg, F. (ed.) The Handbook of International Macroeconomics, Cambridge Ma: Basil Blackwell, 1994.
can a two-country RBC model explain relative price movements?
* Baxter, Marianne, and Mario Crucini, "Explaining Savings-Investment Correlations," American Economic Review, 1992.
attempts to explain the Feldstein-Horioka puzzle with an RBC model
Eric van Wincoop, "Regional Risksharing," Boston University, 1992
evidence of nondiversification of portfolios across regions as well as countries
* Alan C. Stockman and Linda Tesar, "Tastes and Technologies in a Two-Country Model of the Business Cycle: Explaining International Comovements," revised, 1992.
argues that technology shocks are not enough to explain international data; explores taste shocks
* Kenneth Rogoff, "Traded Goods Consumption Smoothing and the Random Walk Behavior of the Real Exchange Rate," bank of Japan Monetary and Economic Studies 10, November, 1992, 1-29.
M. Crucini and J. Kahn, "Tariffs and economic activity: Lessons from the great depression," Journal of Monetary Economics, 1997
H. Dellas, "A real model of the world business cycle," Journal of International Money and Finance, vol. 5, pp. 381-394,
1986.
F. Canova and H. Dellas, "Trade interdependence and the international business cycle," Working paper 90-12, Department of Economics, Brown University, Mar. 1990.
E. van Wincoop, "A multi-country real business cycle model with heterogeneous agents," Scandinavian Journal of Economics, 1995.
I. H. Correia, J. .ao César das Neves, and S. Rebelo, "Business cycles in a small open economy," European Economic Review, vol. 39, pp. 1089-1113, June 1995.
S. Ahmed, B. W. Ickes, P. Wang, and B. S. Yoo, "International business cycles," American Economic Review, vol. 83,
pp. 335--359, June 1993.
S. Ahmed and R. Murthy, "Money, output, and real business cycles in a small open economy," Canadian Journal of
Economics, vol. 27, pp. 982-993, Nov. 1994.
S. Ahmed and J. H. Park, "Sources of macroeconomic fluctuations in small open economies," Journal of Macroeconomics,
vol. 16, pp. 1-36, 1994.
M. Baxter, "International trade and business cycles," in Gene Grossman and Ken Rogoff, eds., Handbook of International Economics vol. III, ch. 35, pp. 1801-1864, Elsevier Science B.V., 1995.
M. Baxter and M. J. Crucini, "Business cycles and the asset structure of foreign trade," International Economic Review 36,
November 1995, 821-54.
II. EXCHANGE RATES
II.1. Models of Flexible Exchange Rates
GENERAL
Maurice Obstfeld and Alan Stockman, "Exchange-Rate Dynamics," R. Jones and P. Kenen (eds.), Handbook of International Economics, Vol II, Amsterdam: North-Holland, 1985
survey of models of exchange rates up to 1984
Maurice Obstfeld and Kenneth Rogoff, "Exchange Rate Dynamics Redux," Journal of Political Economy 103, June 1995, 624-60.
Alan Stockman and Linda Tesar, "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," (with Linda Tesar), American Economic Review 85 no. 1, March, 1995, 168-85.
Alan C. Stockman, " Sources of Real Exchange Rate Fluctuations: A Comment," Carnegie-Rochester Conference Series 41, December 1994, 57-66.
David Backus, Patrick J. Kehoe, and Finn Kydland, "International Real Business Cycles," Journal of Political Economy, 1992.
David Backus, Patrick J. Kehoe, and Finn Kydland, "Relative price movements and international business cycles," Handbook of International Macroeconomics, ed. R. van der Ploeg, Basil Blackwell, October 1993.
David Backus, Patrick J. Kehoe, and Finn Kydland, "International business cycles: Theory vs. Evidence," in Thomas F. Cooley (ed.) Frontiers of Business Cycle Research, Princeton University Press, 1995
Catherine Betts and Michael B. Devereux, "The Exchange Rate in a Model of Pricing to Market," European Economic Review 40, 1996, 1007-1021
Olivier Blanchard and Nobuhiro Kiyotaki, "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review 77 (September, 1987): 647-66.
Rudiger Dornbusch, "Expectations and Exchange Rate Dynamics," Journal of Political Economy 84 (1976), 1161-76
Lee E. Ohanian and Alan C. Stockman, " Arbitrage Costs and Exchange Rates," University of Rochester, unpublished, 1997.Raman Uppal, "A General Equilibrium Model of International Portfolio Choice," Journal of Finance, Vol. 48.2, June 1993, 529-553.
Raman Uppal, P. Sercu and C. Van Hulle, "The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, Vol. 50.4, September 1995, 1309-1319.
Raman Uppal and P. Sercu, "Exchange Rate Volatility and Trade: A General Equilibrium Analysis," (UBC Working Paper, 1996.
Bernard Dumas, "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, vol. 5, 1992, pp. 153-180
EQUILIBRIUM MODELS
Alan C. Stockman, "A Theory of Exchange Rate Determination," Journal of Political Economy 88 (1980), 673-98.
early equilibrium model of exchange rates: attempts to show how real shocks can cause changes in nominal exchange rates that are correlated with changes in real exchange rates
Milton Friedman, "The Case for Flexible Exchange Rates," in Essays in Positive Economics, University of Chicago Press, 1951.
classic paper on exchange rates: insightful, denser than it looks, though sometimes confused
* Robert Lucas, "Interest Rates and Currency Prices in a Two-Country World," Journal of Monetary Economics 10 (1982), 335-60.
basic 2-country, 2-good model with representative agents, cash-in-advance, complete markets
* Alan C. Stockman, "The Equilibrium Approach to Exchange Rates," Economic Review, Federal Reserve Bank of Richmond, March-April, 1987, 12-31.
advanced-undergraduate level presentation
* Alan Stockman and Harris Dellas, "International Portfolio Nondiversification and Exchange Rate Variability," Journal of International Economics 26, no. 3/4, May 1989, 271-90. 1989.
non-traded goods in Lucas's 1982 model: affects consumption correlations and portfolios
* Lars E.O. Svensson, "Currency Prices, Terms of Trade, and Interest Rates: A General Equilibrium Asset-Pricing, Cash-in-Advance Approach," Journal of International Economics, 1985.
generalizes the cash-in-advance model in Lucas, 1982
Alan C. Stockman and Lars E.O. Svensson, "Capital Flows, Investment, and Exchange Rates," Journal of Monetary Economics, March 1987.
adds production and investment to Lucas, 1982 (though in a very restrictive way)
David K. Backus and Patrick J. Kehoe, "On the Denomination of Government Debt: A Critique of the Portfolio Balance Model," Journal of Monetary Economics 23 No. 3, May 1989, 359-76.
more beating up on the so-called "portfolio-balance model" of exchange rates
Kazimierz Stanczak, "The Implications of Convex Arbitrage Costs for International Macroeconomics," UCLA, 1992
effects of costly arbitrage in a 2-country model
Mary Finn, "The Equilibrium Approach to Nominal and Real Exchange Rate Comovement," working paper, May 1996
corr(e,eP*/P)
DISEQUILIBRIUM MODELS
* Rudiger Dornbusch, "Expectations and Exchange Rate Dynamics," Journal of Political Economy 84 (1976), 1161-76
classic paper on exchange-rate "overshooting" with a sticky price level in the short run
Maurice Obstfeld and Kenneth Rogoff, Foundations of International Macroeconomics, ch. 9
a 2-country Kiyotaki-Wright (QJE) model; modified version of below
* Maurice Obstfeld and Kenneth Rogoff, "Exchange Rate Dynamics Redux, Journal of Political Economy 103, June 1995, 624-60.
a 2-country Kiyotaki-Wright (QJE) model; modified version of above
Rudiger Dornbusch, "Real Exchange Rates and Macroeconomics: A Selective Survey," NBER wp 2775, November 1988.
a neo-Keynesian takes on equilibrium (neoclassical) open-economy macro
Jacob Frenkel and Assaf Razin, "The Mundell-Fleming Model a Quarter Century Later: A Unified Exposition," IMF Staff Papers 34 No. 4, December 1987, 567-620.
answer to the question, "What is the Mundell-Fleming model, anyway?"
Michael Mussa, "A Model of Exchange-Rate Dynamics," Journal of Political Economy 90 (1982), 74-104.
slow price adjustment combined with real and nominal shocks
Richard H. Clarida, "The Real Exchange Rate and U.S. Manufacturing Profits: A Theoretical Framework with Some Empirical Support," Columbia University Discussion paper 613, June 1992.
imperfect competition and empirical connections between exchange rates and firms' profits
* Svensson, Lars E.O., and Sweder van Wijnbergen, "Excess Capacity, Monopolistic Competition, and the International Transmission of Monetary Disturbances," Economic Journal 99 no. 397, September 1989, 785-805.
effects of money in a complete-market model with sticky nominal prices
* Alan Stockman and Lee E. Ohanian, "The Short-Run Independence of Monetary Policy under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates, Journal of Money, Credit, and Banking, forthcoming, 1997.
Perfect-competition sticky-price model gives SR monetary indepedence with pegged exchange rates
Paul Beaudry and Michael Devereux, "Monetary Policy and the Real Exchange RAte in a Price Setting Model of Monopolistic Competition," Carnegie-Rochester Conference Series, 1995.
2-country version of Benhabib-Farmer multiple-equilibrium model
Catherine Betts and Michael B. Devereux, "The Exchange Rate in a Model of Pricing to Market," European Economic Review 40, 1996, 1007-1021
ytr; extends Obstfeld-Rogoff model to include pricing to market; along with sticky local-currency prices, this jointly magnifies the response of exchange rates to monetary shocks and exchange-rate variability
Catherine Betts and Michael B. Devereux, "The Real Exchange Rate and Aggregate Fluctuations under Pricing to Market," UBC working paper, 1995
ytr; generalization of EER paper
Kenneth A. Froot and Paul Klemperer, "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, 79 (September 1989), 637-654.
BEHAVIOR OF EXCHANGE RATES
Paul O'Connell, "Market Frictions and Relative Traded Goods Prices," unpublished, Harvard University, 1997
Paul O'Connell and S.J. Wei, "The Bigger They Are, the Harder They Fall: How Price Differences between U.S. Cities are Arbitraged," Harvard University, 1997.
Mark P. Taylor and David A. Peel, "Nonlinearities in Real Exchange Rate Adjustment during the Recent Float: Empirical Evidence and Monte Carlo Analysis, working paper, University College, Oxford, 1997
Obstfeld, Maurice, and Alan Taylor, 1997, "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher’s Commodity Points Revisited," unpublished, 1997.
* Obstfeld, Maurice, and Alan Taylor, 1997, "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher’s Commodity Points Revisited," unpublished, 1997.
Charles Engel, "Is Real Exchange Rate Variability Caused by Relative Price Changes? An Empirical Investigation," Journal of Monetary Economics 32, August 1993, 35-50.
Charles Engel, "Long-Run PPP May Not Hold After All," NBER working paper. 5646, July 1966
Charles Engel and John Rogers, "How Wide is the Border?" American Economic Review 86 (December 1996), 1112-1125.
Robert Flood and Andrew Rose, "Fixing Exchange Rates: A Virtual Quest for Fundamentals," Journal of Monetary Economics 36 no. 1, August 1995, 3-38.
* Rogoff, Kenneth, "The Purchasing Power Parity Puzzle," Journal of Economic Literature 34 (June 1996), 647-668.
Ken Froot, M. Kim and K. Rogoff (1995) "The Law of One Price over 700 Years", NBER W.P. No. 5132, May 1995.
* Lewis, K., "Puzzles in International Financial Markets," in Gene Grossman and Kenneth Rogoff (eds.), Handbook of International Economics vol. 3, (Amsterdam: Elsevier Science Publishers B.V., 1995).
* Rogoff, survey chapter on real exchange rates... $$$
Shang-Jin Wei and David C. Parsley, "Purchasing Power Dis-Parity During the Floating exchange rate period," NBER working paper 5032, April 1995.
ytr; find half-life of convergence to PPP for tradeable goods is 4 years
John Rogers and Michael Jenkins, "Haircuts or Hysteresis? Sources of Movements in Real exchange rates," Journal of International Economics XXXVIII, 1995, 339-60
ytr
Charles Engel and John Rogers, "How Wide is the Border?" American Economic Review 86 (December 1996), 1112-1125.
David C. Parsley and Shang-Jin Wei, "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," Quarterly Journal of Economics 111, November 1996: 1211-1236.
Convergence to PPP across cities in the U.S., with disaggregated panel data, occurs with a half-life of 4 to 5 quarters for traded goods and 15 quarters for services; convergence is faster when initial price differences are large and cities are geographically close; but transport costs associated with distance explain only a small fraction of the difference between intra-national and international convergence rates (of 3 to 7 years); authors reject unit root without city-specific means, but cannot reject in their presence
Ken Froot and Kenneth Rogoff, "Perspectives on PPP and Long-Run Real Exchange Rates," Handbook of International Economics vol. 3, Gene Grossman and Kenneth Rogoff (eds.), (Amsterdam: Elsevier Science Publishers B.V., 1995): 1647-88.
Pinelopi K. Goldberg and Michael M. Knetter, "Goods Prices and Exchange Rates: What Have We Learned?" NBER Working Paper 5862 (December 1996), forthcoming Journal of Economic Literature.
Ytr but looks good
Kenneth Rogoff and Maurice Obstfeld, "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives 9, Fall 1995, 73-96.
"The Purchasing Power Parity Puzzle," Journal of Economic Literature 34, June 1996, 647-68.
Michael Mussa, "Empirical Regularities in the Behavior of Exchange Rates and Theories of the Foreign Exchange Market, in K. Brunner and A. Meltzer (ed.) Policies for Employment, Prices, and Exchange Rates, North-Holland, 1981
good summary paper of main empirical regularities on exchange rates (circa 1979)
Jeffrey A. Frankel and Richard Meese, "Are Exchange Rates Excessively Variable?," NBER W. P. No. 2249 (May 1987).
survey of various issues related to exchange rates
* Charles Engel, "Is Real Exchange Rate Variability Caused by Relative Price Changes? An Empirical Investigation," Journal of Monetary Economics 32, August 1993, 35-50.
relative prices of the same good in different countries vary much more than relative prices of different goods in the same country; moreover, these former changes are closely connected with changes in nominal exchange rates; evidence for sticky-price models?
Richard Meese & Kenneth Rogoff, "Empirical Exchange Rate Models of the Seventies: Are Any Fit to Survive?" Journal of International Economics 14 (1983), 3-24
no economic model (or even the forward exchange rate) beats a random walk at exchange-rate prediction
* Richard Meese & Kenneth Rogoff, "Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period," Journal of Finance 43 No. 4, Serptember 1988, 933-48.
follow-up to 1983 paper -- real vs. nominal shocks, international real-interest differentials
* John Campbell and Richard Clarida, "The Dollar and Real Interest Rates," Carnegie-Rochester Conference Series 27, 1987.
most variation in exchange rates does not seem to be expected and built into international real-interest differentials (e.g. as dynamic responses to previous shocks); instead, most seem to be unexpected and permanent
Hali J. Edison and B. Dianne Pauls, "Re-Assessment of the Relationship between Real Exchange Rates and Real Interest Rates, 1974-1990," International Finance Discussion paper no. 408, Board of Governors of the Federal Reserve System, 1992.
evidence of no relation between e and r-r* in the data
* John Huizinga, "An Empirical Investigation of the Long-Run Behavior of Real Exchange Rates," Carnegie-Rochester Conference Series 27, 1987, 149-214.
there is mean-reversion in exchange rates, though not like that implied by some models
* Robert E. Cumby and John Huizinga, "The Predictability of Real Exchange Rate Changes in the Short Run and Long Run," NBER working paper 3468, 1990.
there are expected changes in exchange rates
Charles Engel and James Hamilton, "Long Swings in the Exchange Rate: Are They in the Data and Do Markets Know It?" NBER w.p. 3165, 1989
Hamilton's Markov-switching model applied to the exchange rate -- results show long-term mean reveresion (though the sample period is very short)
Charles Engel, "Can the Markov-Switching Model Forecast Exchagne Rates?" Universityof Washington, 1991
evidence that the Markov-switching model performs poorly out of sample for exchange rates
* Francis X. Diebold, Steven Husted, and Mark Rush, "Real Exchange Rates under the Gold Standard," Journal of Political Economy 99 No. 6, December 1991, 1252-71.
they were stationary: PPP holds in the long run
Joseph A. Whitt, Jr., "Nominal Exchange Rates and Unit Roots: a Reconsideration," Journal of Internatinal Money and finance 11 No. 6, December 1992.
says exchange rates do not have unit roots
* Jeffrey A. Frankel and Richard Meese, "Are Exchange Rates Excessively Variable?," NBER W. P. No. 2249 (May 1987).
survey of various issues related to exchange rates
* Nelson Mark, "Exchange-Rates and Fundamentals: Evidence on the Long-Run Predictability and Overshooting," American Economic Review 85, March 1995, 201-18.
exchange rates are predictable -- they slowly return toward the simple monetary-model solution
* James R. Lothian and Mark P. Taylor, "Real Exchange Rate Behavior: the Recent Float from the Perspective of the Past Two Centuries," Fordham University, 1992.
evidence that exchange rates are I(0) and highly predictable
* Richard H. Clarida and Mark P. Taylor, "The Term Structure of Forward Exchange Rates and the Forecastability of Spot Exchange Rates: Correcting the Errors," Columbia University Discussion paper 627, September 1992.
markets predict some changes in exchange rates
* Rodrigo Peruga, "Trade Balances: Do Exchange Rates Matter?" Indian University Septermber 1992
empirical evidence that says "yes"
* Martin Eichenbaum and Charles Evans, "Some Empirical Evidence on the Effects of Monetary Policy Shocks on Exchange Rates," Quarterly Journal of Economics 110, November 1995, 975-1009.
money shocks cause instant real and nominal depreciations and persistent international interest-rate differencials
* Richard Clarida and Jordi Gali, "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?", Carnegie-Rochester Conference Series 41, December 1994, 1-56.
argues that their structural VA shows monetary shocks to be quite important
* Marianne Baxter, "Real Exchange Rates and Real Interest Differentials: Have we Missed the Business-Cycle Relationship?" Journal of Monetary Economics 33 no. 1, February 1994, 5-38
presents some evidence that we have
* Karen Lewis, "Are Foreign Exchange Intervention and Monetary Policy Related and Does it Really Matter?", NBER working paper 4377, June 1993
argues yes, and yes
Rose, A. and L.E.O. Svensson, European Exchange Rate Credibility Before the Fall, NBER QP 4495
Davutyan and J. Pippenger, PPP did not collapse during the 1970s, American Economic Review 1985
Bui and Pippenger, Commodity Prices, Exchange Rates and their Relative Volatility, JIMF 1990
Steigerwald, D., PPP Unit Roots and Dynamic Structure, UCSB WP 1993.
BUDGET DEFICITS
Martin Feldstein, "The Budget Deficit and the Dollar," NBER Macroeconomics Annual, 1986, 355-392, and comments by Rudiger Dornbusch and Alan C. Stockman, pp. 393-407
Feldstein argues that the high dollar in the first half of the 1980s was due to the big U.S. government budget deficit -- but what about the second half of the 1980s?
Paul Evans, "Is the Dollar High Because of Large Budget Deficits?" Journal of Monetary Economics 18 no. 3, November 1986, 227-50.
Evans answers "No."
FORWARD EXCHANGE RATES
* Kenneth A. Froot, "On the Efficiency of Foreign Exchange Markets, MIT working paper, 1990.
very good survey on the forward-rate puzzle; later published in shorter form with R. Thaler in the Journal of Economic Perspectives
Charles Engel, "Why is there a Forward Discount Rate Bias? A Survey of recent Evidence," Working Paper July 1995.
Geert Bekaert and Robert J. Hodrick, "Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets," Journal of Finance 47, June 1992, 467-509.
* Robert J. Hodrick, An Interpretation of Foregin Exchange Market Efficiency Tests," Northwestern University, 1992.
Hodrick takes a different view on the issues discussed in Froot's survey
Robert J. Hodrick, The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets, 1987.
fairly comprehensive book with evidence on forward exchange rates
Robert J. Hodrick, "Risk, Uncertainty, and Exchange Rates," Journal of Monetary Economics 23, May 1989, 433-59.
very good (though ultimately unsuccessful) attempt to explain forward and spot exchange-rate data with an extension of Lucas's model
* Jeffrey A. Frankel and Kenneth Froot, "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review 77, No. 1 (March 1987), 133-153.
maybe the forward rate puzzle reflects irrational expectations -- evidence from a survey of expectations
Ross Levine, "An Empirical Inquiry into the Nature of the Forward Exchange Rate Bias," Journal of International Economics 30 No. 3/4, May 1991, 359-70.
more on the forward-rate puzzle
* Kenneth D. West, Hali J. Edison, and Dongchul Cho, "A Utility-Based Comparison of Some Models of Exchange-Rate Volatility," NBER Technical Working Paper No. 128, November, 1992.
econometric estimates of exchange-rate volatility and optimal portolio allocation
Martin D.D. Evans and Karen K. Lewis, "Trends in Expected Returns in Currency and Bond Markets", NBER working paper #4116, 1992
trends in asset returns (not just prices) due to small departures from rational expectations
Alberto Giovannini and Gustavo Piga, "Understanding the High Interest Rates on Italian Government Securities," CEPR working paper 720, 1992
investors expect the lira to depreciate
Jeffrey Frankel and Menzie Chinn, "Exchange Rate Expectations and the Risk Premium: Tests for a Cross-Section of 17 Currencies," NBER Working Paper #3806, 1992.
both expected changes in the exchange rate and a risk premium are important in the forward premium
Bennett T. McCallum, "A Reconsideration of the Uncovered Interest Parity Relationship," NBER Working Paper #4113, 1992.
how it might be induced by monetary policy
II.2. Exchange-Rate Systems
* Alan Stockman, "Real Exchange Rates under Alternative Nominal Exchange Rate Systems," Journal of International Money and Finance 2 (Aug., 1983), 147-66
evidence that the nominal exchange-rate system affects relative-price behavior
* Michael Mussa, "Nominal Exchange Rate Regimes and the Behavior of Real Exchange Rates," Carnegie-Rochester Conference Series on Public Policy 25, 1986, 117-214.
further evidence on the result in Stockman, JIMF 1983
Ben S. Bernanke, "The macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit, and Banking 27 no. 1, February 1995, 1-28.
Ehsan U. Choudri and Levis A. Kochin, "The Exchange Rate And The International Transmission Of Business Cycle Disturbances: Some Evidence From The Great Depression," Journal of Money, Credit, and Banking 12, 1980, 565-74.
Vittorio Grilli and Graciela Kaminsky, "Nominal Exchange Rate Regimes and the Real Exchange Rate: Evidence from the US and Britain, 1885-1986," NBER wp 3067, August 1989; revised version: Univ. Pennsylvania wp, #19, October 1988.
* Guillermo Mondino, "Real vs. Nominal Shocks and the Neutrality of Nominal Exchange-Rate Systems," University of Chicago working paper, October 1990.
evidence that real shocks explain most exchange-rate changes, and that the exchange-rate system is neutral
* Alan C. Stockman, "Real Exchange Rate Variability under Pegged and Floating Nominal Exchange Rate Systems: An Equilibrium Theory," in K. Brunner and A.H. Meltzer (eds.), Carnegie-Rochester Conference Series on Public Policy 29, Autumn 1988, 259-94.
attempts to explain the difference in relative-price behavior across exchange-rate systems in an equilibrium model (without assuming sticky prices)
David H. Papell, "Can Equilibrium Models Explain Nominal Exchange Regime Non-Neutrality? Evidence from the European Monetary System," Journal of International Money and Finance, 1992.
evidence for/against the hypothesis in Stockman (carnegie-Rochester Conf.) 1988
Marianne Baxter and Alan C. Stockman, "Business Cycles and the Exchange Rate Regime: Some International Evidence," Journal of Monetary Economics 23 No. 3, May 1989, 377-400.
what else does the exchange-rate system affect (besides relative prices)?
Sergio Rebelo, "Inflation in Fixed Exchange Rate Economies: the Recent Portuguese Experience," IIES Seminar paper No. 517, July, 1992.
how disinflation can affect the relative price of nontraded goods in a pegged-exchange-rate economy
Tamim Bayoumi and Barry Eichengreen, "Macroeconomic Adjustment under Bretton Woods and the Post Bretton Woods Float: An Impulse-Response Analysis," NBER Working Paper #4169, 1992.
why did the Bretton Woods system collapse? and what were the results?
Flood, R. and A. Rose, "Fixing Exchange Rates: A Virtual Quest for Fundamentals," Journal of Monetary Economics 36 no. 1, August 1995, 3-38.
Stockman, A.C. and L. Ohanian, "Short-Run Independence of Monetary Policy Under Pegged Exchange rates,"
NBER WP 4517
* Svensson, L.E.O. (1993) "Fixed Exchange Rates as a Means of Price Stability: What Have We Learned ?", NBER W.P.
No. 4504, October.
Tornell, Aaron and Andres Velasco (1995) "Fixed versus Flexible Exchange Rates: Which Provides More Fiscal Discipline ?", NBER W.P. No.5108.
Andres Velasco, "When are Fixed Exchange Rates Really Fixed?", NBER w.p. 5842, November 1996.
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III. OTHER TOPICS
III.1 Target Zones, Devaluation, and Related Issues
Garber, Peter B., and Lars E.O.Svensson. "The Operation and Collapse of Fixed Exchange Rate Regimes," in Gene Grossman and Kenneth Rogoff (eds.) The Handbook of International Economics, vol. 3 (Amsterdam: Elsevier, 1995).
Hal Cole and Tim Kehoe, "Self Fulfilling Debt Crises,"
under what conditions can creditors’ refusal to roll over debt, due to worry about default, be self-fulfilling?
* Obstfeld, M. (1994) "The Logic of Currency Crises", Cahiers Économiques et Monétaries 43, 1994, 189-213.
Flood, R. and P. Garber (1984) "Collapsing Exchange Rate Regimes: Some Linear Examples", Journal of International Economics.
Obstfeld and Rogoff, 554-556 (the classical Krugman model of speculative attacks.)
Obstfeld and Rogoff, 648-653 (a multiple equilibrium interpretation of speculative attacks.)
Maurice Obstfeld, "Rational and Self-Fulfilling Balance-of-Payments Crises," American Economic Review 76, No. 1 March 1986, 72-81.
speculative attacks on currencies under pegged exchange rates
Guillermo A. Calvo, "Balance of Payments Crises in a Cash-in-Advance Economy," Journal of Money, Credit, and Banking 19, February 1987.
more on speculative attacks on currencies under pegged exchange rates
* Jeremy Bulow and Paul Klemperer, "Rational Frenzies and Crashes," Journal of Political Economy 102 no. 1, February 1994, 1-23.
* Kenneth A. Froot and Maurice Obstfeld, "Exchange Rate Dynamics under Stochastic Regime Shifts: A Unified Approach," Journal of International Economics 31 No. 3/4, November 1991, 203-30.
nice method for solving models with regime shifts; applications include speculative attacks
Kenneth A. Froot and Maurice Obstfeld, "Stochastic Process Switching: Some Simple Solutions," Econometrica, 59 (January 1991), 241-250.
* Lars E.O. Svensson, "Why Exchange-Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates," NBER Working Paper #4207, November, 1992.
Hans Lindberg, Lars E.O. Svensson, and Paul Soderlind, "Devaluation Expectations: the Swedish Krona 1982-91," NBER Working Paper #3918, 1992.
Lars E.O. Svensson, "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," NBER wp #3466, October 1990
Lars E.O. Svensson, "Target Zones and Interest-Rate Variability," Journal of International Economics 31 No. 1/2, August 1991, 27-54.
Lars E.O. Svensson, "The Simplest Test of Target Zone Credibility," NBER wp #3394, June 1990
Robert P. Flood, Andrew K. Rose, and Donald J. Mathieson, "An Empirical Exploration of Exchange-Rate Target-Zones," Carnegie-Rochester Conference Series on Public Policy, 35, 1991, 7-66.
Giuseppe Bertola and Lars E.O. Svensson, "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," working paper, October 1990
Karen K. Lewis, "Occasional Interventions to Target Rates with a Foreign Exchange Application," NBER working paper 3398, July 1990.
Robert Flood and Peter Garber, "The Linkage between Speculative Attack and Target Zone Models of Exchange Rates," Quarterly Journal of Economics CVI No. 4, November 1991, 1367-72.
III.2. International Transmission of Business Cycles and Inflation; Stabilization Policies
Alan C. Stockman, "Exchange Rates, the Current Account, and Monetary Policy," in W.S. Haraf (ed.) Monetary Policy in a World of Change, Washington, D.C.: American Enterprise Institute, 1990; and comments by Jeffrey Frankel ("The Zen of Modern Macroeconomics")
Svensson, Lars E.O., "International Transmission of Fiscal Policy," Scandinavian Journal of Economics 89 no. 3, July 1987, 305-334.
Vittorio Grilli and Nouriel Roubini, "Financial Integration, Liquidity, and Exchange Rates," NBER wp 3088, August 1989.
how exchange rates react in a 2-country version of the Feurst-Lucas model of liquidity effects
Nouriel Roubini and Vittorio Grilli, "Liquidity Models in Open Economies: Theory and Empirical Evidence," NBER working paper 5313, October 1995
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Don E. Schlagenhauf and Jeffrey Wrase, "A Monetary Open-Economy Model with Capital Mobility," Institute for Empirical Macroeconomics Discussion paper 67, 1992.
how exchange rates react in a 2-country version of the Feurst-Lucas model
Emanuela Cardia, "The Dynamics of a Small Open Economy in Response to Monetary, Fiscal, and Productivity Shocks," Journal of Monetary Economics 28 No. 3, December 1991, 411-34.
* Rebelo, S. and C. Vegh (1995) "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories", NBER W.P. No. 5197, July 1995
Vegh, C. (1992) "Stopping High Inflation: An Analytical Overview", IMF Staff Papers, Vol. 39, September.
Guidotti, P. and C. Vegh (1992) "Losing Credibility: The Stabilization Blues", IMF Working Paper, September.
Calvo, G. and C. Vegh (1993) "Fighting Inflation with High Interest Rates: The Small Open Economy Case under Flexible Prices", Journal of Money Credit and Banking.
III.3. Fiscal Policies
Maurice Obstfeld and Kenneth Rogoff, Foundations of International Macroeconomics, ch. 3
Shagil Ahmed, "Temporary and Permanent Government Spending in an Open Economy: Some Evidence for the UK," Journal of Monetary Economics 17 no. 2, March 1986, 197-224
nice empirical application
Frenkel, Jacob A., and Assaf Razin, Fiscal Policies in the World Economy: An Intertemporal Approach, Cambridge, Massachusetts: MIT Press, 1987; second edition 1992?.
extensive analysis of fiscal policy and its international effects in a neoclassical model
Michael Devereux, "Fiscal Spending, the Terms of Trade, and Real Interest Rates," Journal of International Economics 22 (1987), 219-235.
effects on real interest rates
Maurice Obstfeld, "Fiscal Deficits and Relative Prices in a Growing World Economy," Journal of Monetary Economics 23, No. 3, May 1989, 461-85
"crowding in" rather than "crowding out"
* Enrique Mendoza and Linda Tesar, "Supply Side Economics in a Global Economy" NBER W.P. 5086, April, 1995
Torsten Persson and Guido Tabellini, "Strategic aspects of international macroeconomic policy," in in Handbook of International Economics vol. 3, Gene Grossman and Kenneth Rogoff (eds.), (Amsterdam: Elsevier Science Publishers B.V., 1995)
Marianne Baxter, "Financial Market Linkages and the Internatinoal Transmission of Fiscal Policy," University of Rochester, 1992.
dynamic effects of fiscal policies in an open economy along the lines of Frenkel and Razin; with complete and incomplete international financial markets
III.4. Sterilization, Official Intervention, and Monetary Policies
Warren Weber, "Do Sterilized Interventions Affect Exchange Rates?" Quarterly Review, Federal Reserve Bank of Minneapolis, Summer 1986.
the evidence (weak as it is) suggests not
Maurice Obstfeld, "The Effectiveness of Foreign-Exchange Intervention: Recent Experience," NBER wp 2796, Dec 1988.
says it wasn't very effective
III.5 International Debt
* Eaton, John and Raquel Fernandez (1995) "Sovereign Debt", Gene Grossman and Ken Rogoff (eds.), Handbook of International Economics, Vol.III, Amsterdam: North Holland, 1995.
Jeremy Bulow and Kenneth Rogoff, "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy 97, 1989, 155-78. Electronic version is available at http://www.jstor.org/
Jeremy Bulow and Kenneth Rogoff, "Sovereign Debt: Is to Forgive to Forget?" American Economic Review 79, 1989, 43-50. Electronic version is available at http://www.jstor.org/
Jeremy Bulow and Kenneth Rogoff, "The Buyback Boondoggle," Brookings Papers on Economic Activity: no. 2, 1988, 675-698.
Harold L. Cole, James Dow, and William B. English, "Resumption of Lending in a Reputational Model of Sovereign Debt," University of Pennsylvania, 1989
Harold L. Cole and Patrick J. Kehoe, "Reputation Spillover across Relationships: Reviving Reputation Models of Debt," Journal of Monetary Economics 1996 $$$
English, William, "Understanding the Costs of Sovereign Default: American State debts in the 1840's" American Economic Review 86 (March 1996): 259-275.
Eaton, Jonathan and Raquel Fernandez, "Sovereign Debt" in Handbook of International Economics, vol. 3
Some Older "Classic" papers
Hume, D., "Of the Balance of Trade","Of Money" Essays: Moral, Political and Literary
John Stuart Mill, Principles of Political Economy, Book III, Chapters XVII-XXII
Mundell, R. A., "The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates," Quarterly Journal of Economics, 1960
--------, "A Theory of Optimum Currency Areas," American Economic Review,1961
--------, "The Appropriate use of Monetary and Fiscal Policies under Fixed Exchange Rates," IMF Staff Papers, 1962
David Backus and Mario Crucini, "Oil Prices and the Terms of Trade," unpublished, Ohio State and NYU, 1996.
Backus, D. and P. Kehoe, ch. 11 in TC
Kouparitsas, M. "Relative Prices and the Terms of Trade: An Empirical Investigation," unpublished, Research Department, Federal Reserve Bank of Chicago.
Asea, P. K. and E. Mendoza, "The Balassa-Samuelson Model: A General Equilibrium Appraisal, Review of International Economics, 1994
Chari, V.V, P. Kehoe, and E. McGrattan, "Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycle," Minn. Fed working paper, December 1996
Kollmann, Robert, "The Exchange Rate in a Dynamic Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation," mimeo, University of Montreal, January 1997, IMF Working Paper WP/97/7.
Dedola, L. and S. Leduc, "Real Effects of Monetary Policy in Open Economy Business Cycle Models," unpublished, University of Rochester
Engel, C., "Accounting for U.S. Real Exchange Rate Changes," NBER WP 5394, 1995
Schlagenhauf, D. and J. Wrase, "Liquidity and Real Activity in a Simple Open Economy Model," Journal of Monetary Economics, 1995.
Mendoza, E. and L.L. Tesar, "International Ramifications of Reforming the Tax System," unpublished, Board of Governors of the Federal Reserve System, 1996.
III.- International Macroeconomics for the Developing World
3.1 Empirical issues in frontier research
3.2 Business Cycles, Monetary Transmission and Exchange Rates
Calvo, Guilermo, and Enrique Mendoza, "Reflections on Mexico's Balance of Payments Crisis: A Chronicle of a Death Foretold," mimeo, University of Maryland, May 1996
Chari, V.V. and Patrick Kehoe, "Hot Money," mimeo, Federal Reserve Bank of Minneapolis, December 1996
Cole, Harold and Timothy Kehoe, "self-fulfilling Debt Crises," mimeo, Federal Reserve Bank of Minneapolis, December
1996.
Blanco, H., and P. Garber, "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, 1986.
Calvo G. and Mendoza, E., "Petty Crime, Cruel Punishment," AER May 1996.
Dornbusch, R. I. Goldfjan, and R. Valdes, "Currency Crises and Collapses," Brookings Papers on Economic Activity, 1995.
Frankel, J. and A. Rose, "Currency Crashes in Emerging Markets: An Empirical Treatment," Journal of International Economics, 1996.
Mendoza, E. "The Terms of Trade, the Real Exchange Rate and Economic Fluctuations," International Economic Review, 1995.
Vegh, C. "Stopping High Inflation", IMF Staff Papers, 1992.
Kehoe, T. "A Dynamic Model of Capital Flows and Real Exchange Rates in North America," unpublished, Department of Economics, University of Minnesota, 1997
Mendoza, E. and Uribe, M. "The Syndrome of Exchange Rate Based Stabilizations and the Uncertain Duration of Currency Pegs," IFDP No. 548, Federal Reserve Board, 1996
Rebelo, S. and C. Végh, "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Macro Annual, 1995
Rebelo, S. "What Happens when Countries Peg Their Exchange Rates: The Real Side of Economic Reforms," unpublished, University of Rochester, September 1996
Uribe, M., "Comparing the Welfare Costs and the Initial Dynamics of Alternative Temporary Stabilization Policies," IFDP No. 539, Federal Reserve Board, 1996.
3.4 Economic Reform and Permanent Disinflation
Albuquerque, R. and S. Rebelo, "Dynamics of Economic Reform," mimeo, University of Rochester
Calvo, G. and A. Drazen, "Uncertain Duration of Reform: Dynamic Implications," Working Paper, Center for International Economics, University of Maryland, 1994
Calvo, G., "Costly Trade Liberalizations" IMF Staff Papers, 1988
Calvo, G. and Mendoza, E. "Trade Reforms of Uncertain Duration and Real Uncertainty: A First Approximation," IMF Staff Papers, 1994
Roldos, J. "Supply-Side Effects of Disinflation Programs," IMF Staff Paper, 1995
Milesi-Ferretti, G.M. and A. Razin, "Sustainability of Persistent Current Account Deficits," NBER WP 5467, 1996
Uribe, M., "Exchange-Rate-Based Inflation Stabilization: the Initial Real Effects of Credible Plans," IFDP No. 503, Board of Governors of the Federal Reserve, 1995.
Baxter, M., "International Trade and Business Cycles." in the Handbook of International Economics, vol. 3
Lewis, K., "What Can Explain the Apparent Lack of International Consumption Risk-Sharing? " Journal of Political Economy 104 (April 1996): 267-297.
Charles N. Noussair, Charles E. Plott, and Raymond G. Riezman, "The principles of exchange-rate determination in an international finance experiment," journal of political economy, August 1997, Vol. 105 No. 4, 822 --861.
Obstfeld, Maurice and Kenneth Rogoff, "The Intertemporal Approach to the Current Account", in the Handbook of International Economics, vol. 3 .
Gagnon, Joseph, "Net Foreign Assets and Equilibrium Exchange Rates: Panel Evidence," International Finance Discussion
Paper 574, Board of Governors of the Federal Reserve System (December 1996).
Charles Engel, "Long-Run Purchasing Power Parity May Not Hold After All," $$$ NBER
David Backus and Mario Crucini, "Oil Prices and the Terms of Trade," unpublished, Ohio State and NYU, 1996.
Charles Engel, "A Model of Foreign Exchange Rate Indetermination," NBER working paper 5766, September 1996
The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities