This paper presents a two-country extension of Lucas' (1988) work on the effects of cash-in-advance constraints in asset markets on the pricing of financial assets. The model is one where there exists some degree of separation between the goods markets and the asset markets and money is used for...

This paper investigates the relationship between international capital liberalization and exchange rate volatility. While the effects of a capital controls liberalization on the transaction volume in the foreign exchange market are theoretically unambiguous, the effects on the volatility of...

This paper presents an overview of recent theoretical and empirical research on 'liquidity models' in open economies; this is a class of optimizing models where money has effects on real asset prices and economic activity without relying on the 'ad-hoc' assumption of price/wage stickiness. The...

This paper presents an overview of recent theoretical and empirical reserach on "liquidity models" in open economies; this is a class of optimizing models where money has effects on real asset prices and economic activity without relying on the "ad-hoc" assumption of price/wage stickiness. The...

This paper considers the empirical evidence on liquidity effects in open economies; we study the effects of monetary policy shocks (identified by innovations in interest rates) on exchange rates. Both overshooting models with short-run price stickiness and flexible-price models with "liquidity...