Stochastic Optimal Control, International Finance, and Debt Crises

Hardcover | April 6, 2006

byJerome L. Stein

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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. Fromthe economic theory and the mathematics of stochastic optimal control the author 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. The theoretically derived equilibriumreal exchange rate - the "natural real exchange rate" NATREX - is where the real 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 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.

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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. Fromthe economic theory and the mathematics of st...

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 Universite de la Mediterranee, Aix-Marseille II (1997). He ha...

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Format:HardcoverDimensions:304 pages, 9.21 × 6.14 × 0.94 inPublished:April 6, 2006Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199280576

ISBN - 13:9780199280575

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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