A Theoretical Framework -- Specifications and Assumptions -- Underlying Equilibrium Growth Paths -- Variations in Employment -- Some Important Implications -- Exchange Rate Overshooting -- Exchange Rate Determination -- Issues Regarding Exchange Rate Determination -- Time Series Properties of...

The paper develops a simple model to explain Covered Interest Parity (CIP) deviations. The model allows for a time-varying country risk premium and is used to motivate a Structural Vector Auto-Regression (SVAR) approach to study the joint dynamics of the Covered Interest Differential (CID) and...