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In a flexible exchange rate open economy, the dynamics of the interest rate within a loanable funds, LF, or an "amended" liquidity preference, LP, model (wherein the latter embodies either "cash-in-advance" or "spillover" considerations) can differ substantially from the dynamics within a...
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The paper develops a flow model of the exchange rate with speculative capital flows integrated in a rigorous manner. The model is consistent with five foreign exchange market puzzles: (1) occasional discontinuous jumps in the exchange rate; (2) periodic short-term regimes of persistent...
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