A small open economy model emphasizing the endogenous interestrate arbitrage was employed to examine whether arbitrage activities would dampen or augment exchange rate volatility against random disturbances. Based on numerical simulation, increased risk aversion of arbitragers was observed to...

Two propositions are verified about the exchange rate regime of a basket peg, which is adopted by some developing countries. The first is that by pegging the domestic currency to an import-weighted basket, the economy can be insulated from the imported inflation resulting purely from change in...

Two propositions are verified about the exchange rate regime of a basket peg, which is adopted by some developing countries. The first is that by pegging the domestic currency to an import-weighted basket, the economy can be insulated from the imported inflation resulting purely from change in...