This paper develops a stochastic equilibrium model of an open economy incorporating speculation in the forward exchange … market. The model is used to examine two issues. The first is the role of speculation in stabilizing the economy against … stochastic disturbances. Much risk averse speculation stabilizes domestic income against disturbances in the domestic bond market …

This paper develops a stochastic equilibrium model of an open economy incorporating speculation in the forward exchange … market. The model is used to examine two issues. The first is the role of speculation in stabilizing the economy against … stochastic disturbances. Much risk averse speculation stabilizes domestic income against disturbances in the domestic bond market …

between large and small traders, and an upper bound of total speculation. To account for the large number of testable …