This paper studies the dynamics of international trade flows at business cycle frequencies. We show that introducing dynamic considerations into an otherwise standard model of trade can account for several puzzling features of trade flows at business cycle frequencies. Our insight is that...

Most economies experience episodes of persistent real exchange rate appreciations, when the question arises whether there is a need for intervention to protect the export sector. In this paper we present a model of irreversible destruction where exchange rate intervention may be justified if the...

Over the past decade, policymakers in many emerging market economies have opted to limit fluctuations of the value of their domestic currencies relative to the U.S. dollar. A simple interest-parity relationship is used to identify the potential sources of upward pressure on the value of a...

We show that bond risk-premia rise with uncertainty about expected inflation and fall with uncertainty about expected growth; the magnitude of return predictability using these two uncertainty measures is similar to that by multiple yields. Motivated by this evidence, we develop and estimate a...

This paper is an analytic comment on two chapters of the Economic Report of the President for 2006. Chapter One deals with the economy in 2005 and the outlook for the future. The chapter provides a detailed analysis of the expansion in 2005 but not an explanation of why the expansion occurred...

Three of the most important recent facts in global macroeconomics -- the sustained rise in the US current account deficit, the stubborn decline in long run real rates, and the rise in the share of US assets in global portfolio -- appear as anomalies from the perspective of conventional wisdom...

The classical dichotomy predicts that all of the time series variance in the aggregate real exchange rate is accounted for by non-traded goods in the CPI basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) found that traded goods had comparable volatility to...

This paper examines the sources of current conflict within the EU and the EMU. The topics discussed include the recent ECB policy of bond buying (the OMT policy), the attempts to advance the "European Project" of stronger political union (the fiscal compact, the banking union, and the proposals...

We seek to understand how Laffer curves differ across countries in the US and the EU-14, thereby providing insights into fiscal limits for government spending and the service of sovereign debt. As an application, we analyze the consequences for the permanent sustainability of current debt...

This paper studies a quantitative general equilibriummodel of the housing market where a large number of overlapping generations of homeowners face both idiosyncratic and aggregate risks but have limited opportunities to insure against these risks due to incomplete financial markets and...