This paper explores the nature of consumption risk-sharing within and across countries. A basic prediction of efficient risk sharing is that relative consumption growth rates across countries or regions should be positively related to real exchange rate growth rates across the same areas. We...

Standard models in open economy macroeconomics predict that an expansionary (contractionary) monetary policy will lead to a currency depreciation (appreciation). Models that generate this prediction include the Dornbusch overshooting model, the flexible price model, the liquidity-effect models,...