This page serves as a
gateway to a new book I am writing on exchange rates and international finance
for the Princeton
Series in International Finance. The book has two intended audiences. The
first comprises PhD. students who already have a grounding
in international macroeconomics and want to extend their knowledge to
incorporate recent research in international finance. The second comprises
researchers in international macroeconomics and finance who are looking for a
guide to recent developments in the literature either to aid their own research
or to extend the syllabi of their PhD courses.
Below is the working outline for the book.
PART I:
Macro Models
a.
Preliminaries
i. Definitions
ii. Price Indices
iii. Purchasing Power Parity
b.
Empirical Characteristics of Real Exchange Rates
i. Real Exchange Rates and
Relative Prices
ii. Volatility and
Autocorrelation
iii. Unit Roots and Half-Lives
iv. Aggregations Bias and the
PPP Puzzle
c.
Macro Exchange Rate Models.
i. Overview
ii. Equilibrium
iii. Exchange Rates in an
Endowment Economy
iv. Exchange Rates in a
Production Economy
d.
Summary.
e.
Bibliography
f.
Review Questions.
g.
Appendix:
i. Dynamic Programming
ii. Approximations
iii. Labor Income
iv. Derivations
a.
The Model
i. Structure
ii. Equilibrium
b.
Sticky Prices
i. Preset Price-Setting
ii. Staggered Price-Setting
c.
International Risk-Sharing
d.
Incomplete Markets
i. International Solvency
ii. Portfolio Choice
iii. Portfolio Balance with
Flexible Prices
iv. Portfolio Balance with
Sticky Prices
e.
Summary
f.
Bibliography
g.
Review Questions
h.
Appendix
i. Dynamic Portfolio Choice
ii. Derivations
a.
Present Value Models
i. Present Value Equations
ii. Drivers of Depreciation
Rates
iii. Cointegration
iv. Volatility
v. Joint Dynamics
vi. Forecasting
b.
Monetary Models
i. Money-Income Models
ii. Taylor-Rule Models
c.
External Balance Models
d.
Predicting Exchange-Rate Movements
i. Meese and Rogoff
ii. Prediction with Panels
iii. Interpretation and
Assessment
e.
Summary
f.
Bibliography
g.
Review Questions
h.
Appendix
i. Econometric Inference in
Exchange Rate Models
ii. Derivations
PART
II: Microstructure Models
a.
The Set Up:
b.
Homogeneity and Common Information
i. Asset Demands with
ii. The Tâtonnement
Process
iii. Market Clearing
iv. Approximating the
Rational Expectations Solution
c.
Heterogeneity
i. Informational Efficiency
and The Grossman Paradox
ii. Higher Order Expectations
iii. Heterogeneous Information
and Rational Confusion
iv. Heterogeneous Information
and Persistence
v. Dynamic Implications
d.
Problems
i. Existence and Uniqueness
ii. Establishing an
Equilibrium
e.
Summary
f.
Bibliography
g.
Review Questions
h.
Appendix
i. Derivations
ii. The Projection Theorem
iii. Impulse Responses
a.
The Set Up
b.
Exchange Rate Determination
i. Quotes and Beliefs
ii. Learning from Trade
c.
Exchange Rate Dynamics
i. Learning about
Fundamentals
ii. Market Efficiency and
Volatility
d.
Information Flows
i. Interpreting the Quote
Spread
ii. Order Flow
e.
Public verses Private Information
f.
The Role of Uniformed Traders
g.
Summary
h.
Bibliography
i.
Review Questions
a.
The Structure of the Foreign Exchange Market
i. The Interbank Market
ii. The Retail Market
iii. Market Participants
iv. Implications
for
b.
The Portfolio Shifts Model
i. Overview
ii. Set Up
iii. Market Participants
iv. Equilibrium
v. Solving for the
Equilibrium
vi. Features of the
Equilibrium
c.
Extending the Portfolio Shifts Model
i. Multiple Currencies
ii. Lower Transparency
d.
Summary
e.
Bibliography
f.
Review Questions
g.
Appendix
a.
Daily Analysis
i. Single Currency Results
ii. Multiple Currencies
iii. Dealer Order Flow and
Customer Order Flow
b.
Intraday Analysis
i. Vector Autoregressions
ii. VAR Models of Intraday
Trading
1.
Market Time Models
2.
Clock Time Models
iii. Decentralized Trading
Models
3.
The VAR Identification Problem
4.
The Evans Intraday Trading Model
c.
Forecasting Order Flow and Feedback Trading
d.
Summary
e.
Bibliography
f.
Review Questions
g.
Appendix
i. GMM Estimation of Clock
Time Models
ii.
a.
Order Flow in a Rational Expectations Model
b.
Order Flow in a Limit Order Book
c.
Estimating Order Flow
i. Estimating Order Flow
from Portfolio Holdings
ii. Estimating Order Flow
from Transaction Prices
d.
Summary
e.
Bibliography
f.
Review Questions
g.
Appendix
PART
III: Micro-Based Macro Models
a.
A Micro-Based Macro Model
i. Structure
ii. Equilibrium
iii. Empirical Implications
b.
Order Flow and Macro Information
i. Exchange Rate Returns
and Order Flows
ii. Macro Variables and
Order Flows
c.
Re-Examining the Disconnect Puzzle
i. Measuring Macro
Variables
ii. Current Macro Conditions
iii. Future Macro Conditions
iv. Combining the Micro and
Macro Evidence
d.
Summary
e.
Bibliography
f.
Review Questions
g.
Appendix
i. The Kalman
Filter
ii. Real-Time Estimation
iii. Derivations
a.
The Macro Perspective
i. The Event-Study
Rationale
ii. Event-Study Regressions
iii. Event-Study Results
b.
Micro Perspective I: High Frequency Dynamics
i. Data Releases in the
Portfolio Shifts Model
ii. Empirical Evidence
c.
Micro Perspective II: Low Frequency Dynamics
i. Daily Effects
ii. Longer-Term Effects
d.
Summary
e.
Bibliography
f.
Review Questions
g.
Appendix
i. Estimation of the Evans
and
4. Exchange
Rate Risk
a. FX
Returns and Interest Rates
i. Interest
Parity
ii. The
Carry Trade
b. 11.2
Macro Models
i. Stochastic
Discount Factors
ii. Reverse
Engineering the Forward Premium Puzzle
iii. Euler
Equation Models
iv. Peso
Problem Models
c. Micro-Based
Models
i. A
Micro-Based Model of the Risk Premium
ii. Micro-Based
Explanations for the Forward Premium Puzzle
iii. Excess
Returns, Risk Premia and Order Flows
d. Summary
e. Bibliography
f. Review
Questions
g. Appendix
i. Solving
the Micro-Based Model
ii. Derivations