This paper explores the macroeconomic consequences of preferences displaying asubsistence point. It departs from the existing related literature by assuming thatsubsistence points are specific to each variety of goods rather than to the compositeconsumption good. We show that this simple feature...

This paper addresses the consumption–real exchange rate anomaly.International real business cycle models based on complete financialmarkets predict a unitary correlation between the realexchange rate and the ratio of home to foreign consumptionwhen subjected to supply-side shocks. In the data,...