On the eve of a major change in the world monetary system, the adoption of a single currency in Europe, our theoretical understanding of the implications of the exchange rate regime for trade and capital flows is still limited. We argue that two key model ingredients are essential to address...

This paper studies the process of capital inflow management and speculative inflows for countries pursuing the joint goals of monetary and exchange rate management. We introduce a sticky-price model with imperfect asset substitutability in which a central bank engages in costly sterilization to...

This paper analyzes movements in the U.S. external imbalance over the 1980s from the perspective of the capital account. It considers the empirical evidence on two competing hypotheses about the causes of the large and persistent net capital inflow during the decade: one that the capital inflow...

This paper presents a general model of the determination of the interest rate and the exchange rate which is relevant for a small economy with any degree of capital mobility. The model is tested by using the quarterly data of Korea and Singapore. The emperical results show that in the Korean...