Speculation, Capital Mobility, Price Flexibility, Forward Market Intervention and Exchange Rate Variability: A Simulation Approach

This study develops a general stochastic disequilibrium model for a small open economy in order to investigate whether under rational expectations hypothesis increased speculation, capital mobility, price flexibility and forward market intervention can dampen fluctuations of spot and forward exchange rates against random disturbances originating in the home country and abroad. The key extension made here is the incorporation of these realistic aspects into the model: (1) foreign goods are imperfect substitutes for domestic goods; (2) foreign assets are imperfect substitutes for domestic assets on a covered basis; and (3) the current forward rate differs from the future spot by a market-determined risk premium. Although domestic goods price is assumed to be sticky, it is not predetermined, as in the literature.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2014

Author dc:creator

• Tseng, Hui-Kuan

• Economics, General

Identifier

(UMI)AAI8908872

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/72413