economic fundamentals. This paper considers whether interest rate differentials are appropriate measures of the risk of … devaluation and whether this measure of devaluation risk reflects the movements of variables which capture internal and external … balance. The paper finds that interest rate differentials reflect devaluation risk but that movements in fundamental variables …

participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the …

This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated … to macroeconomic variables. For the Italian lira (1987-94), unconditional risk premiums—constructed using survey data to … (relative to the variability of the forward bias), and predictable. Estimation of structural models of the risk premium suggests …

increased moderately. This de-leveraging effect is stronger for firms exposed to significant rollover risk, while firms whose …