The paper shows that differences in real interest rates across countries can arise even with perfect competition and fully integrated international capital markets. Specifically, we find that factor returns will differ across countries which are identical except for differences in technological...

This paper analyses the effects of productivity shocks on the current and future terms of trade and on output in a two country framework. An overlapping-generations model is used in which individuals allocate their savings between domestic and foreign capital assets according to their...

This paper develops a new parity condition for international financial markets which relates differences between the forward exchange rate and the expected future exchange rate to interest rate term premiums. It begins with the general proposition that VIP cannot hold for all maturity horizons...

This paper considers the effect on factor prices and welfare of trade between economies whose production is characterized by nation-specific technological uncertainty. The analysis is carried out using a two-country Diamond overlapping-generations model in which technological uncertainty is...