We examine the behavior of forward and spot exchange rates from the perspective of the representative agent theory of asset pricing. We verify that with moderate risk aversion and time-additive preferences the theory accounts for very little (by our calculations, less than 5 percent) of the...

We review the recent research on time-varying risk premiums, including attempts to explain rejection by Baillie and others of "the unbiasedness hypothesis." Using spot and forward foreign exchange rates we discuss the evidence for time-varying risk premiums, relate it to general equilibrium...

We apply recent advances in dynamic competitive analysis to open economy macroeconomics and draw out implications for comovement among consumption, output, trade balances, government deficits, and exchange rates. The real economy is a stochastic exchange model with complete markets. With...

We examine the possibility that nontraded goods may account for several striking features of international macroeconomic data: large, persistent deviations from purchasing power parity, small correlations of aggregate consumption fluctuations across countries, and substantial international real...

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