Abstract
In the previous chapter we saw that general equilibrium models could be constructed in a natural way to yield seemingly unstable exchange rate equilibrium. These equilibria were difficult to describe in an empirically satisfactory way and were constrained by the simplicity of the model to show somewhat specific behavior. While this was the intention of the exercise, we wish to go beyond those models to a less restrictive modelling format which will guide our empirical work. It is important to keep in mind the previous results as they will set the stage for the model construction and theory of this chapter. To begin with we return to the more traditional currency substitution literature of Calvo and Rodriguez (1977) and Canto and Nickelsburg (1984a,1984b) and review briefly the literature which we adopt to fit the results of Chapter 2.
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© 1987 Kluwer Academic Publishers
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Canto, V.A., Nickelsburg, G. (1987). Empirical Implementation of the Instability Hypothesis. In: Currency Substitution. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-3261-6_3
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DOI: https://doi.org/10.1007/978-94-009-3261-6_3
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