The literature on strategic policy interactions has focused on the implications of alternative strategic policy interactions, cooperative versus noncooperative, for equilibrium macroeconomic policies given the state of the world economy. This paper asks how changes in world economic conditions...

A model of a small open economy in which agents trade in local goods markets and an economy-wide asset market is developed. Purchasing-power parity is assumed to hold at the aggregate level. However, because of local deviations from purchasing-power parity, agents possess differential...