Recent literature has argued that conventional measures of external sustainability – the trade balance and current account – are misleading because they omit capital gains on net foreign asset positions. We adjust the definition of the current account to include the capital gains and discuss...

In this paper we critically examine the main workhorse model in asset pricing theory, the Lucas (1978) tree model (LT-Model), extended to include heterogeneous agents and multiple goods, and contrast it to the benchmark model in financial equilibrium theory, the real assets model (RA-Model)....