We analyze the global imbalances and the required adjustments for rebalancing in current accounts and real exchange rates. We set up a two-country two-sector model for the US-China with two asymmetries. First, we assume that the size of China initially is one third of the US but its size becomes...

This paper analyzes the dynamics of risk premia, real exchange rates and portfolio movements in a two-country, two-good, two-bond model. We use an asymmetric set-up in the model, where one of the countries is emerging and the other one is developed and both countries issue bonds in domestic...

In this paper, we show that tradable and non-tradable TFP processes of the US and Europe have unit roots and can be modeled by a vector error correction model (VECM). Then, we develop a standard two country and two good (tradable and non-tradable) DSGE model. Our model implies that using...