After liberalizing international transactions of financial assets, many countries experiencelarge swings in asset prices, capital flows, and aggregate production. This paper studies howthe adjustment to capital account liberalization depends upon the degree of development of adomestic financial...

This paper analyzes a useful accounting framework that breaks down the current account to twocomponents: a composition effect and a growth effect.We show that past empirical evidence, which stronglysupports the growth effect as the main driver of current account dynamics, is misconceived. The...

This paper provides a new theory of international capital ows. In a frameworkthat integrates factor-proportions-based trade and nancial capital ows, a novel forceemerges: capital tends to ow towards countries that become more specialized incapital-intensive industries. This `composition' eect...

The `quantity anomalies' that arise from standard international business cycle models are cross-country correlations in consumption being higher than output, and negative comovement in aggregate investment and employment. This paper shows thatincorporating multiple sectors with heterogeneous...

This paper shows that properly designed interest rate rules can be consistent withmaintaining exchange rate stability. It sheds light on the relation between interest rate rules,exchange rate regimes, and determinacy of the rational expectation equilibrium in a modernmacroeconomic framework.[...]

This paper addresses the consumption–real exchange rate anomaly.International real business cycle models based on complete financialmarkets predict a unitary correlation between the realexchange rate and the ratio of home to foreign consumptionwhen subjected to supply-side shocks. In the data,...