This paper investigates the factors determining the impact of exchange rate regimes on the behavior of domestic investment and foreign direct investment (FDI). Producers may diversify internationally in order to increase the flexibility of production. We characterize the possible equilibria in a...

This paper interprets contagion effects as an increase in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets,...

Because durable goods have the quality of an asset, risk-averse consumers want to pay a lower price for durable than for nondurable goods so that they are compensated for the risk of price changes; they require risk premium. Since the exchange rate is a strong source of uncertainty in import...