When available financial securities allow investors to optimally diversify risk across countries, standard theory implies that exchange rates should reflect this behavior. However, exchange rates observed in the data deviate from these predictions. In this paper, we develop a framework to value...

Korea's real exchange rate has displayed a mild downward trend since the 1980s, with fluctuations of ±20 percent around that trend. This pattern is surprising because the classic Harrod-Balassa-Samuelson framework suggests that countries experiencing rapid growth in the productivity of their...

Recent theories of exchange rate determination have emphasized limited UIP arbitrage by international financial institutions. New regulations since 2008 have also lead to imperfect CIP arbitrage. We show that under limited CIP arbitrage the exchange rate and CIP deviation are jointly determined...

This study empirically investigates how the invoice currency choice differs between intra-firm and arm's-length exports. We also examine whether other firm- and product-level characteristics affect the choice of invoice currency. This study is the first to be granted access to highly...

While Japanese exports are generally considered invoiced mainly in U.S. dollars (USD), this study presents contrary evidence that most Japanese firms choose yen-invoiced exports. Surprisingly, only the top one percent of firms in size tend to choose USD-invoiced exports, based on the Japan...

As a result of the BoJ's large-scale asset purchases, the consolidated Japanese government borrows mostly at the floating rate from households and invests in longer-duration risky assets to earn an extra 3% of GDP. We quantify the impact of Japan's low-rate policies on its government and...

We provide the first empirical evidence on how media-driven narratives influence cross-border institutional investment flows. Applying natural language processing techniques to one-and-a-half million newspaper articles, we document substantial cross-country variation in sentiment and risk...

This paper studies a form of liquidity risk that we call 'Liquidity After Solvency Hedging' or "LASH" risk. Financial institutions take LASH risk when they hedge against solvency risk, using strategies that require liquidity when the solvency of the institution improves. We focus on LASH risk...

This paper quantifies the positive and normative impact of Bretton Woods capital controls on global and regional economic activity. A three-region DSGE capital flows accounting framework consisting of the U.S., Western Europe, and the Rest of the World (ROW) is developed to quantify capital...

We survey the literature on global capital allocation. We begin by reviewing the rise of cross-border investment, the shift towards portfolio investment, and the literature focusing on aggregate patterns in multilateral and bilateral positions. We then turn to the recent literature that uses...