Balance of Payment and Exchange Rate Theories

This work provides a perspective on balance of payments and exchange rate theories, including intertemporal open economy models that focus on the optimum current account. To this end, it proves that any non-zero balance of payments must always be associated with a disequilibrium in either a commodity or an asset market. In this rigorous yet readable book, important welfare and policy implications are carefully examined. The author develops a new theory of the balance of payments associated with commodity market disequilibrium, a loanable funds theory of exchange rate and a modern foreign exchange market theory of the exchange rate that incorporates capital flows. The book also details 15 puzzling facts associated with open economies and the FX market. After reviewing existing explanations to these puzzles, Miller shows how each of the above new theories provides new, often unified solutions to them.