This paper develops asymptotic econometric theory to help understand data generated by a present value model with a discount factor near one. A leading application is to exchange rate models. A key assumption of the asymptotic theory is that the discount factor approaches 1 as the sample size...

We show analytically that in a rational expectations present value model, an asset price manifests near random walk behavior if fundamentals are I(1) and the factor for discounting future fundamentals is near one. We argue that this result helps explain the well known puzzle that fundamental...

This paper describes results of a pair of incentivized experiments on biases in judgments about random samples. Consistent with the Law of Small Numbers (LSN), participants exaggerated the likelihood that short sequences and random subsets of coin flips would be balanced between heads and tails....

Using tick-by-tick data of the dollar-yen and euro-dollar exchange rates recorded in the actual transaction platform, a quot;runquot; -- continuous increases or decreases in deal prices for the past several ticks -- does have some predictable information on the direction of the next price...

We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of net exports and net foreign assets. In addition to bringing Gourinchas and Rey's new approach and more recent data to bear, we implement the Clark and West...

Conventional explanations of the near random walk behavior of real exchange rates rely on near random walk behavior in the underlying fundamentals (e.g.. tastes and technology). The present paper offers an alternative rationale, based on a fixed-factor neoclassical model with traded and...

So-called "spurious regression" relationships between random-walk (or strongly autoregressive) variables are generally accompanied by clear signs of severe autocorrelation in their residuals. A conscientious researcher would therefore not end an investigation with such a result, but would likely...

Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time-series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We...

We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt and bankruptcy costs, we introduce a cost of external financing for the...

The seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare (that continue unabated in spite of all the various efforts to curtail the behavior that results in those scandals) argues strongly for an addition to the current paradigm of...