It is well known from anecdotal, survey and econometric evidence that the relationship between the exchange rate and macro fundamentals is highly unstable. This could be explained when structural parameters are known and very volatile, neither of which seems plausible. Instead we argue that...

The microdata underlying U.S. import and export price indexes exhibit frequent product turnover and highly rigid prices. As a consequence, 40% of products are replaced before a single price change is observed and 70% are replaced after two price changes or less. An aggregate price index that...

Fiat money contains the seeds of its own destruction. It has no intrinsic value and, yet, it can be exchanged for valuable consumption and production goods. As Hahn (1965) shows, this situation puts fiat money's market value or liquidity premium at the brink of collapse. In this paper I will...

Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciation across countries. The striking lack of evidence for this link the consumption/real-exchange-rate anomaly or...

The traditional current account can be an inaccurate measure of the change in the net foreign asset (NFA) position. Using gross asset and liability positions at the country level, a number of 'valuation effects' have been identified which contribute to changes in NFA but do not enter the...

The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between...

This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S dollar nominal exchange rate. Despite state-of-the-art methodologies, we find little systematic relation between oil prices and the exchange rate at the monthly and quarterly...

The carry trade is the investment strategy of going long in high-yield target currencies and short in low-yield funding currencies. Recently, this naive trade has seen very high returns for long periods, followed by large crash losses after large depreciations of the target currencies. Based on...

This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically...

We study the dynamics of price indices for major U.S. cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate. In a panel of 19 cities from 1918 to 1995, we estimate the half-life of convergence to be approximately nine...