We argue that a higher share of the private sector in a country's external debt raises the incentive to stabilize the exchange rate. We present a simple model in which exchange rate volatility does not affect agents' welfare if all the debt is incurred by the government. Once we introduce...

This paper studies the long-run relationship between consumption, asset wealth and income - the consumption-wealth ratio - in Germany, based on data from 1980 to 2003. Earlier papers for the Anglo-Saxon economies have documented that departures of these three variables from their common trend...

Empirical evidence suggests that a monetary shock induces the exchange rate to overshoot its long-run level. The estimated magnitude and timing of the overshooting, however, varies across studies. This paper generates delayed overshooting in a new Keynesian model of a small open economy by...

In this paper Friedmann (1953) and Mundell´s (1968) position favouring flexible over alternative exchange rate regimes is reassessed in the context of international financial market integration. In a new open economy macroeconomic framework the paper shows that financial market integration...