We completely characterize the fundamental relationship between the exchange rate and the asset pricing in the two denomination currencies involved when markets are incomplete. Assuming arbitrage-free, perfectly integrated, frictionless but potentially incomplete financial markets, the exchange...

Many monetary and fiscal policy decision makers and economists hold the view that exchange rates are volatile even though nominal exchange rates vary less than many other financial market prices and yields. This paper seeks an explanation for this puzzle by contrasting exchange rate dynamics in...

Many monetary and fiscal policy decision makers and economists hold the view that exchange rates are volatile even though nominal exchange rates vary less than many other financial market prices and yields. This paper seeks an explanation for this puzzle by contrasting exchange rate dynamics in...