The real exchange rate is volatile and tends to move in opposite direction with respect to relative consumption across countries. Chari, Kehoe and McGrattan (CKM, 2002) refer to the inability of models to replicate the last stylized fact as the consumption-real exchange rate anomaly. In this...

An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We assess the importance of financial frictions in this issue by constructing an incomplete market...

It is accepted that standard macroeconomic variables are not capable of predicting ex ante the majority of short term changes in exchange rates. Lettau and Ludvigson (2001) find that fluctuations in the common long-term trend in consumption, asset wealth, and labour income (hereby,...

An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We asses the importance of international financial frictions in this issue by constructing an...

Empirical evidence against both risk-sharing across countries and the uncovered interest rate parity (UIP) condition have been extensively documented. This paper investigates the empirical implications of imperfectly integrated financial markets resulting from these two issues. Under this asset...

It is well documented that macroeconomic fundamentals are little help in predicting changes in the nominal exchange rates compared to the predictions made by a simple random walk. Letta and Ludvigson (2001) find that fluctuations in the common long-term trend in consumption, asset wealth, and...

Researchers have documented extensive empirical evidence on both risk sharing across countries and the uncovered interest rate parity (UIP) condition. This paper involves investigating the empirical implications of imperfectly integrated financial markets resulting from the two phenomena. Under...