This paper provides a stylized choice-thoretic model to analyze optimal monetary policies among interdependent economies. In response to marcoeconomic shocks, policymakers strike a balance between two objectives. The first is to stabilize marginal costs and markups to offset the distortions...

While empirical evidence nds only a weak relationship between nominal exchangerates and macroeconomic fundamentals, forex markets participants often attribute ex-change rate movements to a macroeconomic variable. The variables that matter, how-ever, appear to change over time and some variable...

Empirical evidence shows that macroeconomic fundamentals have little explanatory power for nominal exchange rates. On the other hand, the recent microstructure approach to exchange rates has shown that most exchange rate volatility at short to medium horizons is related to order flows. This...

In this paper, we examine formally Keynes' idea that higher order beliefs can drivea wedge between an asset price and its fundamental value based on expected future payoffs. In a dynamic noisy rational expectations model, higher order expectations add an additional term, which we call the higher...