This paper revisits and proposes a resolution to an empirical and theoretical controversy between Keynes and the "classics" (or monetarists). The controversy dates to Keynes's General Theory (1936)--most famously formalized in Hicks's (1937) classic Econometrica article, in which the IS-LM model...

This note again refutes Kuska's proposition that equality between the demand for and supply of money ("money market equilibrium") implies equilibriumin the balance of payments.Indeed, under a regime of fixed exchange rates it is precisely the balance of payments deficit or surplus that...

On December 1933, John Maynard Keyes published an open letter to President Roosevelt, where he wrote: "The recent gyrations of the dollar have looked to me more like a gold standard on the booze than the ideal managed currency of my dreams." In this paper I use high frequency data to investigate...

Emerging markets (sometimes endowed with fertile pampas) have limited access to world capital markets and suffer from original sin: they cannot borrow in their own currency. Does this mean that monetary and exchange rate policy has non-standard effects in such countries? We develop a simple...

We study the relation among exchange rates, balance sheets, and macroeconomic outcomes in a small open economy. Because liabilities are dollarized,' a real devaluation has detrimental effects on entreprenurial net worth, which in turn constrains investment due to financial frictions. But there...

The intertemporal approach views the current-account balance as the outcome of forward-looking dynamic saving and investment decisions. This paper, a chapter in the forthcoming third volume of the Handbook of International Economics, surveys the theory and empirical work on the intertemporal...

Gourinchas and Rey (2007) have shown that international financial adjustment (IFA) in the path of expected future returns on a country's international investment portfolio can complement or even substitute for the traditional adjustment channel via a narrowing of country's current account...

Changes in both the macroeconomy and in macroeconomics suggest that the IS-LM-AS model is no longer the best baseline model of short-run fluctuations for teaching and policy analysis. This paper presents an alternative model that replaces the assumption that the central bank targets the money...

We propose an easy-to-use search friction in the goods markets in medium-sized New Keynesian models. This friction allows increases in measured productivity in response to increases in expenditures via higher search effort from households. As a result markups can become procyclical and labor...

Much of the new theory of macro-economics that has been built upon micro-economic models of imperfect information leads to conclusions which are surprisingly close in spirit to Keynes' original analysis. This paper summarizes the macro-economic implications of information-based models of...