Recent crises have seen very large spikes in asset price risk without dramatic shiftsin fundamentals. We propose an explanation for these risk panics based on selffullling shifts in risk made possible by a negative link between the current assetprice and risk about the future asset price. This...

In an in‡uential series of contributions, Kraay and Ventura (2000, 2003) o¤er a“new rule” for the current account: in response to a temporary income shock, thechange in the current account is equal to the change in saving times the ratio of netforeign assets to wealth. We analyze the...

It is well known from anecdotal, survey and econometric evidence that the relationshipbetween the exchange rate and macro fundamentals is highly unstable. Thiscould be explained when structural parameters are known and very volatile, neitherof which seems plausible. Instead we argue that large...