This paper presents a theoretical model of exchange-rate determination intended to address the forward premium puzzle. It also explains the empirical observation that risk premiums depend on interest differentials. The model's closed-form solution indicates that currency risk premiums depend on...

International debt contracts can incorporate at least implicitly contingencies governing debt reduction. This paper examines a series of debt contracts that allow for the possibility of rescheduling, forgiveness, and rescheduling with forgiveness. The contract with both rescheduling and...

After disinflation has been achieved, agents who form more sophisticated forecasts have lower confidence in the sustainability of a peg compared to less sophisticated agents. Furthermore, sustained financial stability leads to a declining proportion of sophisticated agents. Thus, the credibility...

Many countries fix their exchange rate in order to bring financial stability. Usually, inflation declines and output expands but contractual agreements retain their short time frame, investment is sluggish, and economic growth slows down a few years later. This outcome is often attributed to...