We develop a theory of exchange rate fluctuations arising from financial institutions' demand for dollar liquid assets. Financial flows are unpredictable and may leave banks "scrambling for dollars." Because of settlement frictions in interbank markets, a precautionary demand for dollar reserves...

We re-examine the time-series evidence for failures of uncovered interest rate parity on short-term deposits for the U.S. dollar versus major currencies of developed countries at short-, medium- and long-horizons. The evidence that interest rate differentials predict foreign exchange risk...

The level of the (log of) the exchange rate seems to have strong forecasting power for dollar exchange rates against major currencies post-2000 at medium- to long-run horizons of 12-, 36- and 60-months. We find that this is true using conventional asymptotic statistics correcting for serial...

Empirical work finds that flows of investments from the U.S. and other high income countries to emerging markets increase during times of quantitative easing by the U.S. Federal Reserve, and the reverse movement occurs under quantitative tightening. We offer new evidence to confirm these...

We construct a two-country New Keynesian model in which US government debt has an advantage as a superior collateral asset in the balance sheets of banks. The model can account for the observed response of the US dollar and US bond returns to a global downturn, in particular when the downturn is...

Exchange-rate models fit very well for the U.S. dollar in the 21st century. A "standard" model that includes real interest rates and a measure of expected inflation for the U.S. and the foreign country, the U.S. comprehensive trade balance, and measures of global risk and liquidity demand is...

The motives of a small country for borrowing to purchase capital equipment on international markets are studied. The country produces tradable capital and a nontradable consumption good and borrows or lends capital to achieve higher levels of welfare. A shift in time-preference favoring future...

We examine a model of a small open economy in which there is free international mobility of financial capital, investment in capital goods and a non-traded good. Such an environment is rich enough to explain several phenomena that are inexplicable in more barren models. We suggest an explanation...

We investigate the effects of higher tariffs on the current account.Tariffs may increase or decrease investment depending on the capital intensity of the sector protected. We find that ther esponse of saving to tariffs issensitive to the modelling of saving behavior. In a model in which...