When the risk premium in the US stock market fell substantially, Shiller (2000) attributed this to a bubble driven by psychological factors. An alternative explanation is that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve which leads...

The authors formulate a stochastic rational-expectations model of exchange-rate determination in which there are random shocks to the process of sluggish price adjustment. They examine the effects of imposing limits upon the range of variation of both nominal and real exchange rates, and...

The authors analyze the effect of rational bubbles in the foreign exchange market, taking account of the interdependence between bubble paths and economic fundamentals. The risk of the bubble ending, modeled as a Poisson process, adds an insurance premium to the interest differential governing...