Currency risk is one of the two components of the total interest rate differential. Hard pegs, such as currency boards, are meant to reduce or even eliminate currency risk, thus reducing domestic interest rates. This paper investigates the patterns and determinants of the currency risk premium...

To study the impact of devaluation, the author focusses on three main factors: the structure of the trade sector in terms of the response of trade flows to changes in relative prices; the relative intensity of domestic value added with respect to imported in production across export and import...