Aggregate issuance of international bonds is found to be significantly higher in strong currencies than in weak ones. The mix of currencies is also found to be influenced by interest rate differentials, with greater issuance in higher-yielding currencies, and by the amount of home country...

The purpose of this paper is to set out a surprisingly simple solution to the Feldstein-Horioka Puzzle or Paradox, which is that even though global financial markets appear to be integrated, levels of saving and investment are correlated across countries because financial markets cannot, by...

The finding of Feldstein and Horioka (1980) that domestic saving and domestic investment are highly correlated across countries despite the rapid globalization and liberalization of financial markets in recent decades has been regarded as a Puzzle or Paradox. However, in this paper, we show that...

We examine the causal relationship between US monetary policy shocks, exchange rates and currency excess returns for a sample of eight advanced countries over the period 1980M1 to 2022M11. We find that the dynamics of the US dollar exchange rate is the main driver of currency excess returns. The...

Meese and Rogoff (1983) and subsequent studies find that economic fundamentals are apparently not able to explain exchange rate movements, but we argue that this so-called "Exchange Rate Disconnect Puzzle" arose because researchers such as Meese and Rogoff (1983) did not use the right...

International macro-finance is a new area of open economy macroeconomics that brings portfolio choice and asset pricing considerations into models of international macroeconomics. The importance of these considerations - typically relegated to Finance and largely overlooked in traditional...

We document an increase in deviations from short-term covered interest rate parity (CIP) in the first half of 2015. Since the Swiss National Bank's (SNB) decision to abandon its minimum exchange rate policy, both the magnitude and volatility of deviations from CIP have increased across several...

This paper studies the violation of the most basic no-arbitrage condition in international finance - Covered Interest Parity (CIP). To understand the CIP conundrum, it is key to (i) account for funding frictions in U.S. dollar money markets, and (ii) to study the challenges of swap...

This paper studies the violation of the most basic no-arbitrage condition in international finance — Covered Interest Parity (CIP). We find that the CIP puzzle largely stems from funding liquidity differences, reflected in the marginal funding rates of the main arbitrageurs. With severe...

Arbitrage ensures that covered interest parity holds. The condition is central to price foreign exchange forwards and interbank lending rates, and reflects the efficient functioning of markets. Normally, deviations from arbitrage, if any, last seconds and reach a few basis points. After the...