Many of the leading models of the carry trade imply that, contrary to the empirical evidence, a country's currency depreciates in times of high consumption and output growth, a manifestation of the Backus and Smith (1993) puzzle. We propose a modification of these models to account for financial...

We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nominal exchange rate is determined by differences in initial wealths the currencies of richer...

A fundamental insight in finance is that there is a strong risk-return tradeoff. Moreira and Muir (2017) challenge this by showing that investors can increase Sharpe ratios by reducing exposure to risk factors when their volatility is high. However, Cederburg, O'Doherty, Wang, and Yan (2020)...