Following Kocherlakota and Pistaferri (2007a), we consider two market structures: (i) where agents cannot insure at all their consumption against idiosyncratic skill shocks and (ii) where agents can insure their consumption against idiosyncratic skill shocks using the domestic financial markets,...

Is the relative price of investment goods a good proxy for investment frictions? We analyze investment frictions in an open economy, flexible price, two-sector two-country model and show that when the relative price of investment goods is endogenously determined in such a model, the relative...

The subject of this paper is to examine the effect of trade liberalization on the behavior of real emerging stock market prices. The paper first explores the theoretical link between trade liberalization and real stock price behavior by developing an open economy asset pricing model with...

A prominent feature of US data is the lack of cointegration between nominal interest rates and M1 velocity. Yet, most general-equilibrium monetary models that have been used for empirical analysis have imposed cointegration between these two series. This paper presents as an alternative a...

An intertemporal asset-pricing model is constructed incorporating an explicit adjustment-cost technology. The capital stock can be altered by investment, but there are adjustment costs whi ch lower the marginal return of investment. In a model involving an i nfinitely-lived representative agent,...