Stochastic Optimal Control, International Finance, and Debt Crises by Jerome L.

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Focuses on the interaction between equilibrium real exchange rates, optimal external debt, endogenous optimal growth and account balances. This book derives benchmarks for the optimal debt and equilibrium real exchange rate in an environment where both the return on capital and the real rate of interest are stochastic variables.

FORMATHardcover LANGUAGEEnglish CONDITIONBrand New Publisher Description

This book focuses on the interaction between equilibrium real exchange rates, optimal external debt, endogenous optimal growth and current account balances, in a world of uncertainty. The theoretical parts result from interdisciplinary research between economics and applied mathematics. From the economic theory and the mathematics of stochastic optimal control the author derives benchmarks for the optimal debt and equilibrium real exchange rate in an environmentwhere both the return on capital and the real rate of interest are stochastic variables. The theoretically derived equilibrium real exchange rate - the "natural real exchange rate" NATREX - is where thereal exchange rate is heading. These benchmarks are applied to answer the following questions.* What is a theoretically based empirical measure of a "misaligned" exchange rate that increases the probability of a significant depreciation or a currency crisis?* What is a theoretically based empirical measure of an "excess" debt that increases the probability of or a debt crisis? * What is the interaction between an excess debt and a misaligned exchangerate?The theory is applied to evaluate the Euro exchange rate, the exchange rates of the transition economies, the sustainability of U.S. current account deficits, and deriveswarning signals of the Asian crises and debt crises in emerging markets.

Author Biography

Jerome L. Stein is Emeritus Professor of Economics, Eastman Professor of Political Economy (Emeritus), and is Visiting Professor in the Division of Applied Mathematics at Brown University. He received his Ph. D. from Yale University (1955) and Docteur Honoris Causa from the Université de la Mediterranée, Aix-Marseille II (1997). He has been an Associate Editor of the American Economic Review, Journal of Banking and Finance and of the Journal ofFinance. He is a member of the Editorial Board of the Australian Economic Papers and the Journal of Banking and Finance. He has been awarded Fellowships by the Guggenheim Foundation, Social Science Research Council andFord Foundation.

Table of Contents

PrefaceOverview1: Optimal debt and Equilibrium Exchange Rates: An OverviewTheoretical Framework2: Stochastic Optimal Control: Short-term Debt in Discrete Time3: Stochastic Inter-temporal Optimization: Long-term Debt in Continuous Time4: The NATREX ModelEvaluating Exchange Rates5: The Euro exchange rate: An Evaluation of Research6: The Transition Economies: A NATREX Evaluation of ResearchExternal Debt and Exchange Rate Crises7: Default Risk in Emerging Markets8: Asian Crises9: United States Current Account Deficits: A Stochastic Optimal Control Analysis

Review

This book makes an important contribution to the analysis of international financial problems. * Serge Rey, University of PAU and Pays de l'Adour, CATT - ECONOMIA, 2006 *

Promotional

Cutting edge interdisciplinary research in the areas of economics and applied mathematics

Long Description

This book focuses on the interaction between equilibrium real exchange rates, optimal external debt, endogenous optimal growth and current account balances, in a world of uncertainty. The theoretical parts result from interdisciplinary research between economics and applied mathematics. From the economic theory and the mathematics of stochastic optimal control the author derives benchmarks for the optimal debt and equilibrium real exchange rate in an environmentwhere both the return on capital and the real rate of interest are stochastic variables. The theoretically derived equilibrium real exchange rate - the "natural real exchange rate" NATREX - is where the real exchange rate is heading. These benchmarks are applied to answer the followingquestions.* What is a theoretically based empirical measure of a "misaligned" exchange rate that increases the probability of a significant depreciation or a currency crisis?* What is a theoretically based empirical measure of an "excess" debt that increases the probability of or a debt crisis? * What is the interaction between an excess debt and a misaligned exchange rate?The theory is applied to evaluate the Euro exchange rate,the exchange rates of the transition economies, the sustainability of U.S. current account deficits, and derives warning signals of the Asian crises and debt crises in emerging markets.

Review Quote

This book makes an important contribution to the analysis of international financial problems.

Promotional "Headline"

Preface Overview 1. Optimal debt and Equilibrium Exchange Rates: An Overview Theoretical Framework 2. Stochastic Optimal Control: Short-term Debt in Discrete Time 3. Stochastic Inter-temporal Optimization: Long-term Debt in Continuous Time 4. The NATREX Model Evaluating Exchange Rates 5. The Euro exchange rate: An Evaluation of Research 6. The Transition Economies: A NATREX Evaluation of Research External Debt and Exchange Rate Crises 7. Default Risk in Emerging Markets 8. Asian Crises 9. United States Current Account Deficits: A Stochastic Optimal Control Analysis

Feature

Cutting edge interdisciplinary research in the areas of economics and applied mathematicsProvides analytical tools to explain and evaluate trends in real exchange rates, and provides theoretically based warning signals of currency and debt crisesExplanation of exchange rate crises and debt crises in Asia and Emerging market countriesProvides an evaluation of the sustainability of US current account deficits and their effects upon the vulnerability of the economy to external shocksEach chapter is self-contained, allowing the reader to read the book as a whole or according to their interest

Details ISBN0199280576 Author Jerome L. Stein Short Title STOCHASTIC OPTIMAL CONTROL INT Language English ISBN-10 0199280576 ISBN-13 9780199280575 Media Book Format Hardcover DEWEY 332.042 Year 2006 Imprint Oxford University Press Place of Publication Oxford Country of Publication United Kingdom Residence US Affiliation Emeritus Professor of Economics, Division of Applied Mathematics, Brown University DOI 10.1604/9780199280575 UK Release Date 2006-04-06 AU Release Date 2006-04-06 NZ Release Date 2006-04-06 Pages 304 Publisher Oxford University Press Publication Date 2006-04-06 Illustrations Numerous tables and figures Audience Professional & Vocational We've got this

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