European sovereign bond trading occurs in a highly liquid interdealer market and a parallel dealer-customer market in which buy-side financial institutions request quotes from primary dealers. Synchronized price data from both market segments allow us to compare market quality. We find that...

We present a simple framework in which both the exchange rate disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell...

Macroeconomic models of equity and exchange rate returns perform poorly. The proportion of daily returns that these models explain is essentially zero. Instead of relying on macroeconomic determinants, we model equity price and exchange rate behavior based on a concept from microstructure -...

This paper addresses currency competition from an information perspective. Transactions in traditional models do not convey information, so transaction costs - the driver of competition outcomes - are driven by market size. In our model, transactions do convey information (consistent with recent...

Macroeconomic models of equity returns perform poorly. The proportion of daily index returns that these models explain is essentially zero. Instead of relying on macroeconomic determinants, our model includes a concept from microstructure - order flow. Order flow is the proximate determinant of...

The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. It successfully explains the high volatility of nominal exchange rates without recourse to sticky prices and...

We develop a life-cycle model of optimal retirement and savings behavior under complete markets. Our model explains the long-run decline in the age of retirement as an income level effect, with higher wage growth and lower interest rates tending to increase the retirement age. We show that...

The introduction of the euro on 1 January 1999 created the conditions for an integrated government bond market in the euro area. Using a unique data set from the electronic trading platform Euro-MTS, we consider what is the quot;benchmarkquot; in this market. We develop and apply two definitions...

The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. It successfully explains (i) the high volatility of nominal and real exchange rates, (ii) the high correlation...

The two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. The 'puzzles' in the forward market are re-examined. The model is able to account for: (a) the low volatility of the forward...