The Economics of Exchange Rates

1. Introduction; 2. Foreign exchange market efficiency; 3. Purchasing power parity and the real exchange rate; 4. Exchange rate determination: theories and evidence; 5. New open economy macroeconomics; 6. Currency unions, pegged exchange rates, and target zone models; 7. Official intervention in the foreign exchange market; 8. Models of currency crisis and speculative attack; 9. Foreign exchange market microstructure.

'Sarno and Taylor's book is a tour de force. The exposition is comprehensive, covering contributions from all corners of the field, and covering the range from the seminal models of the 1970s to the latest discoveries on the theoretical and econometric frontiers of the 2000s. There is no excess verbiage or mathematics. Everything is there to serve a purpose. This is the current state of knowledge.' Jeffrey A. Frankel, Harvard University 'This is a text around which one can build a fine graduate-level course in international finance. The material in this text fits the needs of scholars for a state-of-the-art coverage of the best thinking on exchange rate economics. With topics like New open-economy macroeconomics and Official intervention in the foreign exchange market it should be clear that this book is broad in its scope and delves deeply into the area going well beyond the determinants of exchange rates. The authors pay careful attention to pedagogy with patient, in-text explanations of technical details like Ito's Lemma and excellent appendices on related issues, including Jensen's inequality and GMM estimators. The patient and detailed explanations of technical issues related to the core topics make the book self-contained. The authors have been on the frontiers of research in this area, and this new text clearly reflects their mastery of the subject. I highly recommend this text to both students and scholars of international finance.' Michael Melvin, Arizona State University 'This is a superb volume that should and will be featured on reading lists for years to come. It will also be valued by market participants, policymakers, and their staffs. This is because the book is very well written and brings a focus and organization to the subject that draws on the decades of experience and contributions of the authors. I especially value the synthesis of the empirical and theoretical literatures on exchange rate determination, market efficiency, the new open economy