Discussion paper
DP17197 International Macroeconomics With Imperfect Financial Markets
A review of recent advances in open economy analysis under segmented international financial markets. A set of modeling tools that have been used to understand financial crises, the ensuing policy response (e.g., Quantitative Easing and FX intervention), deviations from arbitrage (CIP deviations), and more generally the impact of capital flows on exchange rates. This modeling approach has also shed a different light on classic topics such as the exchange rate disconnect, international risk sharing, UIP failures, and the carry trade.
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