What is the relationship between interest rates and the exchange rate? The empirical literature in this area has been inconclusive. We use an optimizing model of a small open economy to rationalize the mixed empirical findings. The model has three key margins. First, higher domestic interest...

Do sources of volatility differ by country characteristics such as the level of development, country size, quality of institutions, and presence of restrictions on fiscal policy? This paper sets out to answer this question in a quarterly panel of 48 developed and developing countries for...

This paper aims to document a set of stylized facts characterizing business cycle dynamics in smaller economies. The paper uses a large sample of countries spanning 1960-2014 to show that country size is a significant factor affecting countries' volatility, comovement with gross domestic product...