The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantity the popular story for real exchange rate fluctuations: they are generated by monetary shocks interacting with sticky goods prices. If prices are held fixed for...

This paper studies the relation between the United States? bilateral real exchange rate and the associated bilateral relative price of nontraded goods for five of its most important trade relationships. Traditional theory attributes fluctuations in real exchange rates to changes in the relative...

This paper presents a two-country overlapping generations model in which financial intermediation arises endogenously as an incentive-compatible means of economizing on monitoring costs. Because of the existence of transactions costs, money markets in the two countries are segmented and...

In this study we contrast fixed and floating exchange rate regimes in a dynamic general equilibrium model. We find that the fundamental difference in the regimes is in the courses they imply for monetary policies. Because of policy coordination requirements, a tighter monetary policy needed to...

The conventional wisdom is that monetary shocks interact with sticky goods prices to generate the observed volatility and persistence in real exchange rates. We investigate this conventional wisdom in a quantitative model with sticky prices. We find that with preferences as in the real business...

Monetary policy instruments differ in tightness - how closely they are linked to inflation - and transparency - how easily they can be monitored. Tightness is always desirable in a monetary policy instrument; when is transparency? When a government cannot commit to follow a given policy. We...