Negative Interest Rates, Capital Flows and Exchange Rates

Exchange Rates, Equity Prices and Capital Flows

We develop an equilibrium model in which exchange rates, stock prices and capital flows are jointly determined under incomplete forex risk trading. Incomplete hedging of forex risk, documented for U.S. global mutual funds, has three important implications: 1) exchange rates are almost as volatile as equity prices when the forex liquidity supply is not infinitely price elastic; 2) higher returns...

Do High Interest Rates Stem Capital Outflows?

Conventional wisdom posits that high interest rates stem capital flight. But if higher interest rates increase the probability of debt default, they might have anti-orthodox effects. This note develops a framework for evaluating conditions under which this might occur.  2000 Elsevier Science S.A. All rights reserved.

Nonlinearity In Exchange Rates and Forecasting

Capital flows and exchange rates: recent Korean and Taiwanese experiences and challenges

We first study the characteristics of the crisis and its impacts on Taiwanese and Korean economies. We have examined 22 macroeconomic fundamentals, such as inflation rates, government budget, trade balance, external debt, money supply, and ratios of average monthly imports and cumulative inward portfolio investment to international reserves, and compared with an extensive data set of the two co...

Capital Structure, Debt Maturity, and Stochastic Interest Rates

for their advice on an earlier version where a static model was developed. Abstract This paper develops a model in which an optimal capital structure and an optimal debt maturity are jointly determined in a stochastic interest rate environment. Valuation formulas are derived in closed form and numerical solutions are used to obtain comparative statics. The model yields leverage ratios and debt ...