We propose an exchange rate model which is a hybrid of the conventional specification with monetary fundamentals and the Evans-Lyons microstructure approach. It argues that the failure of the monetary model is principally due to private preference shocks which render the demand for money...

We study exchange rate determination in a 2-country model where domestic banks create each economy's supply of domestic and foreign currency. The model combines the UIP-based and monetary theories of exchange rate determination, but the latter with a focus on private rather than public money...

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...