This book is concerned with a world where the return on capital, interest rates and exchange rates are not known with certainty. On the basis of state of the art research in applied mathematics and economics, the author derives benchmarks that are used to answer many important questions. This research develops analytical tools that can explain and evaluate trends in real exchange rates, and provide theoretically based warning signals of currency and debt crises.

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 of Finance. 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 and Ford Foundation.

• 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