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Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. In an earlier paper, we showed that this reasoning does...
Persistent link: https://www.econbiz.de/10013133109
There is a large and growing empirical literature that tests forthe existence of asset-price bubbles or quot;sunspotquot; equilibria -- equilibria unrelated to market fundamentals. Our view is that even tests for non-stationary asset-price bubbles should not be interpreted as such. In the...
Persistent link: https://www.econbiz.de/10012774699
;tax-smoothingquot; theory of government deficits, which predicts that the inflation tax follows approximately a martingale, and of models of …
Persistent link: https://www.econbiz.de/10012774830
Even when the exchange-rate plays no expenditure-switching role, countries may wish to have flexible exchange rates in order to free the domestic interest rate as a stabilization tool. In a setting with nontraded goods, exchange-rate movements may also enhance international risk sharing
Persistent link: https://www.econbiz.de/10012760533
This paper present some new empirical evidence on the extent of world capital-market integration. The first set of tests carried out uses data from different countries to compare internationally expected marginal rates of substitution between consumption on different dates. If residents of...
Persistent link: https://www.econbiz.de/10012762931
Several puzzling aspects of the behavior of United States stock prices can be explained by the presence of a specific type of rational bubble that depends exclusively on dividends. We call such bubbles quot;intrinsicquot; bubbles because they derive all of their variability from exogenous...
Persistent link: https://www.econbiz.de/10012767840
This paper studies how several macrofinancial factors are associated over time with the evolution of covered interest parity (CIP) deviations in the decade after the Global Financial Crisis. Changes in a number of risk- and policy-related factors have a significant association with the evolution...
Persistent link: https://www.econbiz.de/10012865278
The collapse of a fixed exchange rate is typically marked by a sudden balance-of-payments crisis in which"speculators" fleeing from the domestic currency acquire a large portion of the central bank's foreign exchange holdings.Faced with such an attack, the central bank often withdraws...
Persistent link: https://www.econbiz.de/10013220420
The paper studies the effects of terms-of-trade fluctuations in an infinite-horizon optimizing model of a small open economy. While the current-account response to a transitory terms-of-trade shock is in part explicable by intertemporal smoothing, an important additional factor is the effect of...
Persistent link: https://www.econbiz.de/10013220815
In recent years, many countries have instituted monetary reforms aimed at improving anti-inflation credibility. Is it a problem, however, that international welfare spillover effects seldom receive much consideration in the design of monetary reforms? Surprisingly, the answer may be no. Under...
Persistent link: https://www.econbiz.de/10013221846