Focusing on US and UK, we document that both the Backus and Smith (1993) finding, concerning the low correlation between consumption differentials and exchange rates, and the forward-premium anomaly, concerning the tendency of high interest rate currencies to appreciate, have become more severe...

country, representative consumers economy, we document that the risk-sharing scheme produces a non trivial dynamics of net exports and it is also capable of explaining the tendency of high interest rate currencies to appreciate.

We propose a frictionless general equilibrium model in which two international consumers with recursive preferences trade two consumption goods and a complete set of date and state contingent securities. Consumption home bias and concern for the temporal distribution of risk generate rich...

We study an economy in which two types of agents have diverse beliefs about the law of motion for an exogenous endowment. One type knows the true law of motion, and the other learns about it via Bayes's theorem. Financial markets are incomplete, the only traded asset being a risk-free bond....

We model transitional dynamics that emerge after the adoption of a new monetary-policy rule. We assume that private agents learn about the new policy via Bayesian updating, and we study how learning affects the nature of the transition and choice of a new rule. The model endogenously generates...

We first scrutinize and challenge Prescott's (2002, 2004) quantitative analysis of the role of differences in taxes in explaining cross-country differences in labor market outcomes, and then defend an alternative model that assigns an important role to cross-country differences in social...

To understand trans-Atlantic employment experiences in the post-World War II era, we enrich the environment of Ljungqvist and Sargent (2008) in ways that allow skill losses occasioned by involuntary job separations (`turbulence') to have further effects on labor market outcomes. Our model...

In a Markov decision problem with hidden state variables, a posterior distribution serves as a state variable and Bayes' law under an approximating model gives its law of motion. A decision maker expresses fear that his model is misspecified by surrounding it with a set of alternatives that are...