We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information in economic signals. Similar to models of asymmetric information, we consider how informational advantages by domestic investors about local output impacts...

We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information content in public signals. We determine how informational advantages by domestic (foreign) investors in the interpretation of home (foreign) public signals...

Recent empirical studies of the risk premium across foreign exchange and other asset markets, such as equity and longer term bonds, have found conflicting evidence about the latent variable model restrictions of the consumption-based intertemporal capital asset pricing model. While studies using...

Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one-for-one in the long run, a finding at odds with many theoretical models. This article shows that these results can be deceptive when the process followed by inflation shifts infrequently....

The relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate. In this article, the author examines this relationship using data on U.S. foreign exchange interventions from 1985 to 1990, recently...

This paper describes a class of stochastic stabilizing policies within asset price regimes; that can be easily incorporated into the framework of regime switching recently proposed by K. A. Froot and M. Obstfeld. In contrast to previous treatments of market-driven fundamentals within the regime,...

Societies have incentives to design institutions that allow central bank secrecy. This paper illustrates two of these incentives. First, if society tries to constrain secrecy in one way, central bankers will try to regain lost effectiveness by building up secrecy in other ways. Therefore, we may...

Foreign exchange returns exhibit behavior difficult to reconcile with standard theoretical models. This article asks whether the recent findings of long swings in exchange rates between appreciating and depreciating periods affect estimates of the foreign exchange risk premium. We demonstrate...