| This dissertation develops an analysis of three themes that reside in the confluence of inter national finance and open-economy macroeconomics. Following an introduction, chapter 2 studies the dynamics of the exchange rate under a target zone in which the bounds confining the fluctuation of its fundamental determinant are mobile. Under such a setting, the equilibrium function pricing the foreign currency is shown to depend both on the exchange rate's fundamental determinant and on the latter's permitted interval of variation. After characterizing the target zone solution, some properties of the dynamics of the exchange rate under alternative policies defining the bands' movement are illustrated, and traits of its behavior are compared to those arising under a fixed currency band.;Chapter 3 analyzes the credibility of the Mexican expanding target zone for the exchange rate, from its inception until the 1994 currency crises. The framework employed to study devaluation expectations is the drift-adjustment method, which consists of subtracting an estimated measure of expected intra-band depreciation from interest rate differentials, a difference that provides a measure of credibility. The empirical approach allows for the possibility of imperfect credibility, defines a measure for the equilibrium price of foreign currency that recognizes the presence of a moving band, and makes an effort to identity regime shifts within the preannounced band. Results provide an illustration of some of the properties of the exchange rate under an expanding target zone.;In chapter 4 an intertemporal optimizing model is developed to study the effects of interest rate policy in an open economy, in which the government issues an interest bearing domestic bond alongside currency, and operates a crawling peg exchange rate regime. The analysis draws on an overlapping dynasties formulation, and explores the consequences of a government debt related wealth effect that arises when asset holdings differ among classes in society. The model shows that a debt expansion associated with a contractionary interest rate policy may provoke a sizable intertemporal transfer of wealth in society, producing an expansionary impact in consumption demand. The policy experiments investigated in the chapter imply dynamics for the macro variables that are congruent with some main trends observed in a variety of stabilization experiences. |
