Recent empirical evidence suggests that the weekend and holiday calendar effects are much stronger and statistically significant in volatility as opposed to expected returns. This paper seeks an explanation for this empirical finding by undertaking a comprehensive investigation of the predictive...

By using data from surveys of expectations, it is shown that macroeconomic uncertainty, measured by the standard deviation of the expected output growth, the expected unemployment rate, and the expected inflation rate, is negatively related to the expected performance of the economy, proxied by...

The paper recognizes that expectations and the process of their formation are subject to standard decision making and are determined as a part of equilibrium. Accordingly, the paper presents a basic framework in which the form of expectation formation is a choice variable. At any point in time...

Empirical evidence shows that macroeconomic fundamentals have little explana-tory power for nominal exchange rates. On the other hand, the recent “microstruc-ture approach to exchange rates” has shown that most exchange rate volatility at short to medium horizons is related to order flows....

In most of the recent macroeconomics literature, the sticky reaction of prices in response to changes in aggregate conditions has been modelled following the highly influential contribution of Calvo (1983). However, this approach has difficulties in accounting for some well-established stylized...

We study the loan contracing problem of Gale and Hellwig (1985) under general assumptions of risk aversion and possibly diverse subjective beliefs of the borrower and lender about the income of the investment. We characterize the optimal contract and show that (i) the contractual payoff in...