the forward market in emerging currencies less biased than in major currencies abstract many studies have replicated the finding that the forward rate is a biased predictor of the future change in the spot exchange rate usually the forward discount actually points in the wrong direction but at least until recently those studies applied only to advanced economies and major currencies we apply the same tests to a sample of 14 emerging market currencies we find a smaller bias than for advanced country currencies the coefficient is on average positive i e the forward discount at least points in the right direction it is never significantly less than zero to us this suggests that a time varying exchange risk premium may not be the explanation for traditional findings of bias the reasoning is that emerging markets are probably riskier yet we find that the bias in their forward rates is smaller emerging market currencies probably have more easily identified trends of depreciation than currencies of advanced countries

interpreting comovements in the trade balance and the terms of trade abstract i examine the relation between the trade balance and the terms of trade in a two country dynamic stochastic exchange economy with complete markets along an equilibrium path for this economy the relation is governed by the substitutability between foreign and domestic goods i find in contrast to non stochastic analyses of the harberger laursen metzler effect that a positive association does not require persistent shocks or non constant rates of time preference this contrast highlights the role played by the structure of asset markets complete and otherwise in generating equilibrium comovements

unemployment hysteresis and the natural rate hypothesis i introduction rod cross et al university of st andrews ii reflections on hysteresis and the natural rate 1 the irrelevance of the natural rate lawrence summers harvard university 2 on the history of hysteresis rod cross university of st andrews iii the characteristics of the unemployed 1 unemployment vacancies and the long term unemployed peter smith l b s paul levine south bank polytechnic alan budd l b s 2 characteristics of the long term unemployed evidence from the labour force survey stephen creigh department of employment 3 is unemployment irreversible peter r hughes department of employment gillian hutchinson queen mary college london iv analysis of hysteresis effects 1 union activity and wage employment movements assar lindbeck institute for international studies university of stockholm and dennis snower birkbeck college london 2 a simple model of imperfect competition with walrasian features huw dixon birkbeck college london 3 unemployment and worker quality simon price university of bristol 4 screening in labour markets with heterogeneous workers inge schnell university of bonn and l s e iv hysteresis effects and the explanation of aggregate unemployment 1 testing for multiple natural rates of unemployment in the british economy alan carruth university of kent and andrew oswald centre for labour economics l s e 2 why is wage inflation in britain so high stephen nickell university of oxford 3 phillips curve estimates incorporating a natural rate with hysteresis effects david coe o e c d 4 hysteresis and european unemployment olivier blanchard m i t and lawrence summers harvard university 5 the natural rate empirical fact or theoretical straitjacket tim jenkinson merton college oxford iv panel discussion the implications of hysteresis effects for unemployment policy 1 david stanton employment market research unit department of employment 2 charles adams i m f 3 marcus miller university of warwick 4 peter mcgregor fraser of allander institute university of strathclyde

who benefits from local job growth migrants or the original residents bartik t j 1993 who benefits from local job growth migrants or the original residents reg studies 27 297 311 this paper surveys research on whether the new jobs resulting from growth in a local economy e g a metropolitan area go to inmigrants or the original local residents the empirical evidence suggests that around one quarter of the new jobs from local growth increases the labour force participation rates of local residents in the long run these long run effects may occur because local growth provides residents with valuable employment experience research also suggests that minorities benefit most from growth and that higher wage industries provide greater employment benefits for local residents bartik t j 1993 qui est ce qui beneficie de la croissance d emploi locale les migrants ou la population autochtone reg studies 27 297 311 cet article etudie la recherche effectuee dans le but d evaluer si les nouveaux emplois dus a la croissance d une economic locale par exemple une

solving exchange rate puzzles with neither sticky prices nor trade costs we present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved the flexible price two country monetary model is extended to include a consumption externality with habit persistence habit persistence is modeled using campbell cochrane preferences with deep habits along the lines of the work of ravn schmitt grohe and uribe by deep habits we mean habits defined over goods rather than countries the model is simulated using the artificial economy methodology it offers a neo classical explanation of the meese rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting finally the model naturally generates the negative slope in the standard forward market regression

asset prices and risk sharing in open economies this paper proposes a two good two country general equilibrium model with external habits and home biased preferences that addresses a number of international nance puzzles speci cally the model reconciles the high degree of international risk sharing implied by relatively smooth exchange rates with the modest cross country consumption growth correlations seen in the data resolving the brandt cochrane and santa clara 2006 puzzle furthermore the model matches the empirically observed low correlation between exchange

tax policy and aggregate demand management under catching up with the joneses this paper examines the role for tax policies in productivity shock driven economies with catching up with the joneses utility functions the optimal tax policy is shown to affect the economy countercyclically via procyclical taxes i e cooling down the economy with higher taxes when it is overheating in booms and stimulating the economy with lower taxes in recessions to keep consumption up thus models with catching up with the joneses utility functions call for traditional keynesian demand management policies but for rather unorthodox reasons

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

exchange rate puzzles and distorted beliefs abstract we propose a new explanation for the foreign exchange forward premium and delayed overshooting puzzles we show that both puzzles arise from a systematic distortion in investors beliefs about the interest rate process accordingly the forward premium is always a biased predictor of future depreciation the bias can be so severe as to lead to negative coefficients in the fama regression delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of misperception we document empirically the extent of this distortion using survey data for g 7 countries against the u s and find that it is strong enough to account for these irregularities

the forward premium in a model with heterogeneous prior beliefs abstract this paper explores a model of bond prices where agents have diverse prior beliefs about domestic and foreign inflation in the long run the foreign exchange forward premium reflects expected differences in inflation but in the short run it depends upon the diversity of prior beliefs if some people have diffuse priors about a country s inflation process then its currency commands a forward premium that is eventually dissipated using data on the dollar mark premium from the 1980s it shows that this kind of diversity really matters thus models with a single representative agent give an inadequate description of the data

employment unemployment and demand shifts in local labor markets this paper analyzes the effects of demand shifts within and between local labor markets on unemployment and employment outcomes observed in those markets the demand shifts are calculated from sales growth data at the firm and industry levels the results show that in general employment and wage adjustments by firms are primarily driven by shifts in labor demand demand shifts between local areas account for large fractions of the observed variation in unemployment and employment rate levels and changes across areas within area shifts cause much smaller and insignificant amounts of unemployment and only if they are between industry copyright 1991 by mit press

economic determinants of the nominal treasury yield curve abstract macroeconomic shocks account for most of the variability of nominal treasury yields inducing parallel shifts in the level of the yield curve we develop a new approach to identifying macroeconomic shocks that exploits model based empirical shock measures technology shocks shift yields through their effect on expected inflation and the term premium shocks to preferences for current consumption affect yields through their impact on real rates and expected inflation for both shocks the systematic reaction of monetary policy is an important transmission pathway we find little evidence that fiscal policy shocks are an important source of interest rate variability

less of a puzzle a new look at the forward forex market abstract the two country monetary model is extended to include a consumption externality with habit persistence the model is simulated using the artificial economy methodology the puzzles in the forward market are re examined the model is able to account for a the low volatility of the forward discount b the higher volatility of expected forward speculative profit c the even higher volatility of the spot return d the persistence in the forward discount e the martingale behavior of spot exchange rates and f the negative covariance between the expected spot return and expected forward speculative profit it is unable to account for the forward market bias because the volatility of the expected spot return is too large relative to the volatility of the expected forward speculative profit

carry trades order flow and the forward bias puzzle we investigate the relation between foreign exchange fx order flow and the forward bias we outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time varying risk premium consistent with that bias using 10 years of data on fx order flow we find that more than half of the forward bias is accounted for by order flow with the rest being explained by expectational errors we also find that carry trading increases currency crash risk in that order flow generates negative skewness in fx returns

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

predictability and pricing efficiency in forward and spot developed and emerging currency markets abstract we study the predictability of forward and spot exchange rates of currencies of emerging and developed economies from 1994 to 2016 our purpose is to shed light on the efficiency of currency markets and how and why it has evolved over this time for the currencies of emerging economies our analysis of rates of return on forward contracts finds some evidence of excess predictability especially in the earlier parts of the sample period consistent with the view that this portion of the foreign exchange market has only become efficient in recent times when we turn our attention to excess returns computed from spot exchange rates and spot interest rates however we find much less predictability in particular over our full sample period we find no evidence of excess predictability in contrast with the results reported by hsu et al 2016 but in agreement with kuang et al 2014 the different predictability of spot excess returns and rates of return on forward contracts is a manifestation of the widespread violation of covered interest parity which emerged with the onset of the 2008 financial crisis

is the elasticity of intertemporal substitution constant in all common models of inter temporal allocation the assumption of a constant elasticity of intertemporal substitution eis imposes surprising limitations on within period budget allocations consequently the constant eis assumption can be tested with demand data in fact the eis is pinned down completely by the shape of engel curves if the eis is constant then the eis can be estimated without variation in the interest rate that a price elasticity can be estimated without variation in the relevant price illustrates just how strong the constant eis assumption is the constant eis assumption is rejected by demand data

risk external adjustment and capital flows abstract this paper studies the process of external adjustment i develop an open economy model with endowment and preference shocks that can account for the empirical behavior of real exchange rates interest rates and consumption in the u s and europe the model includes cross border holdings of bonds and equity and financial frictions that impede international risk sharing i find that external adjustment following endowment shocks predominantly takes place via trade flows consistent with the intertemporal approach to the current account in contrast preference shocks that change investors risk aversion induce adjustment via the trade and valuation channels where the latter includes the effects of unexpected capital gains and loss on existing cross border holdings and changes in the expected future return differentials between foreign assets and liabilities the model estimates imply that the valuation channel of external adjustment is more important for the u s than the trade channel consistent with this implication i show that forecasts of future return differentials contributed most to the volatility of the u s net foreign asset position in the post bretton woods era

two views of the geographic distribution of unemployment this paper investigates the extent to which equilibrium and disequilibrium explanations can account for unemployment rate differentials between cities it shows that shocks that disturb the steady state relationship among the unemployment rates of metropolitan areas tend to be eliminated by mobility within a single year it also shows that high unemployment areas tend to be those with attractive climates and amenities high wages and high unemployment insurance it argues that the main effect of government programs that create jobs in high unemployment areas will be to lure additional job seekers to those areas

volatile and persistent real exchange rates with or without sticky prices the flexible price two country monetary model is extended to include a consumption externality with habit persistence two methodologies are employed to explore this model s ability to generate volatile and persistent exchange rates in the first actual data is used for the exogenous driving processes in the second the model is simulated using estimated forcing processes the theory in both cases is capable of explaining the high volatility and persistence of real and nominal exchange rates as well as the high correlation between real and nominal rates

international business cycles the authors estimate a dynamic two country model in which economic fluctuations are driven by a worldwide supply shock country specific supply shocks and relative fiscal money and preference shocks identification is achieved using only long run restrictions based on a theoretical model the main results are 1 supply shocks particularly country specific ones are very important in generating international business cycles and 2 although the post 1973 flexible exchange rate period has been inherently more volatile there are no differences in transmission properties of economic disturbances across exchange rate regimes for the endogenous variables they focus on copyright 1993 by american economic association

future fiscal and budgetary shocks abstract we study the effects of future tax and budgetary shocks in a non monetary and possibly non ricardian economy an unanticipated temporary labor tax cut to be effective on a given future date a delayed debt bomb causes at once a drop in the unit value placed on the firms business asset the customer with the result that share prices the hourly wage and employment drop in tandem this paradox of reduced activity through announcement of future stimulus does not hinge on an upward jump of long interest rates a future tax rate cut lacking a sunset provision has the same negative effects

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

the new deal and modern memory summary economists and other social scientists may never be able to explain fully why the greatdepression happened when it did or why it initially was so severe numerous hypotheses havebeen advanced as we have seen and each of them contributes important insights into thecauses of the macroeconomic calamity in which most of the world was mired in 1929 1933 if however one is forced to adopt a monocausal theory it must center on the actions of america scentral bank which presided over an extraordinary expansion in bank credit in the mid to late1920s and then took the punch bowl off the table for the purposes of this article though the key question is why did the great depressionlast longer in the united states than it did in any other nation the answer as laid out in thenext section is presidential politics 23 there will come seven years of great plenty throughout all the land of egypt but after them will arise seven years offamine and all the plenty will be forgotten in the land of egypt the famine will consume the land genesis 41 29 30 nkjv

wage theory new deal labor policy and the great depression were government and unions to blame a growing number of economists blame the length and severity of the great depression on factors that rigidified wage rates raised production costs and interfered with the market allocation of labor the target of their critique is president franklin roosevelt s new deal labor program which they portray as creating a series of large negative supply shocks through encouragement of unions minimum wages unemployment insurance and other anticompetitive industrial relations practices the author uses a combination of institutional and keynesian theory to present the other side of the story drawing principally from the works of j r commons and j m keynes he develops both a spending and productivity rationale for stable wages during the great depression and demonstrates that the new deal s interventionist labor program was on balance necessary and beneficial he also highlights the neglected macroeconomic dimension of industrial relations theory and policy

accounting for forward rates in markets for foreign currency absteract forward and spot exchange rates between major currencies imply large standard deviations of both predictable returns from currency speculation and of the equilibrium price measure the intertemporal marginal rate of substitution representative agent theory with time additive preferences cannot account for either of these properties we show that the theory does considerably better along these dimensions when the representative agent s preferences exhibit habit persistence but that the theory fails to reproduce some of the other properties of the data in particular the strong autocorrelation of forward premiums since the advent of flexible exchange rates in the early 1970s a large body of statistical work has established that forward rates for major currencies are not optimal predictors of future spot rates relevant evidence is reported in studies by baillie lippens and mcmahon 1983 bekaert 1991 bilson 1981 boothe and longworth 1984 cumby 1988 cumby and obstfeld 1984 fama 1984 gregory and mccurdy 1984 hansen and hodrick 1983 hodrick and srivastava 1984 and korajczyk and viallet 1990 a more complete list of references is provided by hodrick 1987 these papers indicate that returns from speculation in forward and spot currency markets are predictable and that the predictable components vary considerably over time a number of alternative explanations have been offered for the predictable variation in foreign currency market excess returns kaminsky 1988 korajczyk 1985 and krasker 1980 suggest that infrequent extreme events may make returns appear predictable in small samples the so called peso problem lewis 1989 argues that rational learning following infrequent changes in the process governing equilibrium prices can explain part of the ex post predictability of currency returns froot and frankel 1989 and froot and thaler 1990 examine the hypothesis that market forecasts of future spot

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

order flow and the monetary model of exchange rates evidence from a novel data set we propose an exchange rate model that is a hybrid of the conventional specification with monetary fundamentals and the evans lyons microstructure approach we estimate a model augmented with order flow variables using a unique data set almost 100 monthly observations on interdealer order flow on dollar euro and dollar yen the augmented macroeconomic or hybrid model exhibits greater in sample stability and out of sample forecasting improvement vis a vis the basic macroeconomic and random walk specifications

the employment of black men trends in wages and employment of black men are contradictory wages are rising and employment is falling the article first describes employment trends using data from the five decennial censuses 1940 80 noting that education is becoming a more important determinant of participation next it is shown that ratios of average wages have not been severely biased by falling participation of those who would earn the least if they worked the final question asks whether falling participation of black men results from deteriorating job opportunities or from falling labor supply falling supply appears to dominate

us monetary and fiscal policy in the 1930s the paper provides a survey of fiscal and monetary policies during the 1930s under the hoover and roosevelt administrations and how they influenced the policies during the recent great recession the discussion of the causal impacts of monetary policy focuses on papers written in the last decade and the findings of scholars using dynamic structural general equilibrium modelling the discussion of fiscal policy shows why economists do not see the new deal as a keynesian stimulus describes the significant shift toward excise taxation during the 1930s and surveys estimates of the impact of federal spending on local economies the paper concludes with discussion of the lessons for the present from 1930s monetary and fiscal policy

did sunspot forces cause the great depression abstract we apply a dynamic general equilibrium model to the period of the u s great depression in particular we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises in other words agents self fulfilling expectations can serve as a primary impulse behind fluctuations we find that the model driven only by these measured sunspot shocks can explain well the entire depression era that is the decline from 1929 to 1932 the subsequent slow recovery and the recession that occurred in 1937 1938

the time variation of risk and return in foreign exchange markets a general equilibrium perspective this article successively introduces variable velocity durability and habit persistence in a standard two country general equilibrium model and explores their effects on the variability of exchange rate changes forward premiums and the foreign exchange risk premium a new feature of the model is that agents make decisions at a weekly frequency and face conditionally heteroskedastic shocks nevertheless even the most complex model fails to deliver sufficiently variable risk premiums without causing forward premiums and exchange rates to be excessively variable unlike previous models the model can roughly match the persistence of forward premiums article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

when does uncovered interest parity hold a consensus is emerging that returns to the currency carry trade are driven by two factors one of these is probably consumption risk but there is widespread disagreement about the identity of the remaining factor this paper bolsters the case for volatility being the unknown factor a structural model that specifies that monetary volatility is the second factor is tested for 56 monetary regimes using the artificial economy methodology the negative slope in the fama regression arises when monetary volatility is low and the precautionary savings motive dominates the intertemporal substitution motive when monetary volatility is high the fama slope is positive in line with uncovered interest parity we conclude that given the predominance of precautionary savings the degree of monetary volatility explains whether uncovered interest parity holds

fixed versus flexible lessons from ems order flow abstract we extend the literature on regime dependent volatility in two ways first our microstructural model provides a qualitatively new explanation second we test implications of our model using europe s recent shift to rigidly fixed rates ems to emu in the model shocks to order flow induce more volatility under flexible rates because the elasticity of speculative demand is endogenously low leading to pronounced portfolio balance effects new data on ff dm transactions show that order flow had persistent effects on the exchange rate before emu parities were announced after announcement the ff dm rate was decoupled from order flow as the model predicts

pricing to habits and the law of one price this paper proposes a novel international transmission mechanism based on the assumption of deep habits the term deep habits stands for a preference specification according to which consumers form habits on a good by good basis under deep habits firms face more elastic demand functions in markets where nonhabitual demand is high relative to habitual demand creating an incentive to price discriminate we refer to this type of price discrimination as pricing to habits in the presence of pricing to habits innovations to domestic aggregate demand induce a decline in markups in the domestic country but not abroad leading to a departure from the law of one price in this way the proposed pricing to habit mechanism can explain the observation that prices of the same good across countries expressed in the same currency vary over the business cycle furthermore it can account for the empirical fact that in response to a positive domestic demand shock such as an increase in government spending the real exchange rate depreciates domestic consumption expands and the trade balance deteriorates

the impact of monetary policy on the exchange rate a high frequency exchange rate puzzle in emerging economies abstract this study investigates the impact of monetary policy shocks on the exchange rates of brazil mexico and chile we find that even a focus on 1 day exchange rate changes following policy events which reduces the potential for reverse causality considerably fails to lend support for the view that associates unexpected interest rate hikes with immediate appreciations this lack of empirical backing for the predictions of standard open economy models persists irrespective of whether we use the us dollar or effective exchange rates whether changes in the policy rate that were followed by exchange rate interventions are excluded whether contaminated events are dropped from the analysis or whether we allow for non linearities we argue that it is difficult to attribute this stronger version of the exchange rate puzzle to fiscal dominance as unexpected rate increases are not associated with increases in risk premia and similar results are obtained in the case of chile a country that has had the highest possible short term credit rating since 1995 and a debt gdp ratio below 10

accounting for the great depression economists have offered many theories for the u s great depression but no consensus has formed on the main forces behind it here we describe and demonstrate a simple methodology for determining which theories are the most promising we show that a large class of models including models with various frictions are equivalent to a prototype growth model with time varying efficiency labor and investment wedges that at least on face value look like timevarying productivity labor taxes and investment taxes we use u s data to measure these wedges feed them back into the prototype growth model and assess the fraction of the fluctuations in 1929 39 that they account for we find that the efficiency and labor wedges account for essentially all of the decline and subsequent recovery investment wedges play at best a minor role this article originally appeared in the american economic review american economic association

migration and interregional employment redistribution in the united states during the 1970 s the south and west census regions accounted for 89 9 percent of incremental u s population and 72 5 percent of incremental nonagricultural employment these figures are sharply higher than corresponding figures for any other decade in u s history for example during the 1930 s the south and west gained 65 4 percent of incremental national population which was the highest share previously recorded the immediate cause of the interregional population shifts is fairly heavy net out migration from the northeast and north central regions to the south and west combined with birth rates that are near historical low levels interactive relationships that cause employment growth and migration to reinforce one another are probably operating but these relationships are not well understood they are the focus of this paper using a new and unique set of time series data on migration and employment we develop and estimate a time series model of migration and employment growth for each of 171 u s regions our primary emphasis in this paper is on the 57 major metropolitan

using theory for measurement an analysis of the cyclical behavior of home production abstract a significant amount of economic activity takes place within the home unfortunately it is difficult to assess the cyclical properties of home production because the available data are too sporadic using a real business cycle rbc model we construct quarterly data on three variables that are unobservable at a quarterly frequency hours worked in the home sector hours spent in leisure and the consumption of home produced goods three results emerge leisure is countercyclical while nonmarket hours are acyclical hours spent in home production have declined significantly since the 1970s fluctuations in market output are a good measure of fluctuations in individual utility as long as home and market consumption are either extreme complements or extreme substitutes in the production of utility

an examination of the asymmetric effects of money supply shocks in the pre world war i and interwar periods we test whether monetary shocks had asymmetric output effects before world war ii ball and mankiw 1994 show that expectations of persistent inflation under fiat money can explain why negative monetary shocks had larger effects than positive shocks after world war ii consistent with this explanation we find such asymmetry in the interwar period following the abandonment of the gold standard and before it when agents arguably anticipated this development we find no monetary asymmetry before world war i which is consistent with ball and mankiw 1994 because under a credible gold standard agents do not expect persistent inflation jel e31 es2

industrial shifts skills levels and the labor market for white and black males in this paper we estimate the effects of industrial shifts in the 1970s and 1980s on the wages and employment of black and white males we use micro census data for 52 msa s and estimate effects separately by age and education group the results show that industrial shifts did reduce demand for blacks and for less skilled males in the 1970s and 1980s demand shifts away from manufacturing in particular reduced employment and wages for black and white males while the magnitudes of these effects are fairly small for many groups they can account for one third to one half of the employment decline for less educated young blacks in the 1970s these results imply fairly large effects on the earnings of less skilled males in the 1980s as well authors

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

emerging market fluctuations what makes the difference aggregate fluctuations in emerging countries are quantitatively larger and qualitatively different in key respects from those in developed countries using data from mexico and canada this paper decomposes these differences in terms of shocks to aggregate efficiency and shocks that distort the decisions of households about how much to invest consume and work in a standard model of a small open economy the decomposition exercise suggests that most of these differences are explained by fluctuations in aggregate efficiency distortions in labor decisions over the business cycle and most importantly fluctuations in country risk other distortions are quantitatively less important

on the foreign exchange risk premium in a general equilibrium model abstract the foreign exchange risk premium in a cash in advance model is investigated some weaknesses of the definition of the risk premium generally used are discussed it is shown that the primary ultimate source of foreign exchange risk is the covariance of monetary shocks with real output shocks several studies have assumed this covariance is zero and hence assumed away the major source of risk in the model finally the risk premium generated from standard versions of this model is argued to be very small because it is the same order of magnitudeas covariances of money and output growth rates