This paper analyzes two simple wage rules that keep employment constant when there are shocks to the prices of imported materials. One rule ties nominal wages to the GNP deflator rather than the consumer price index. The second rule, followed by Japan after the second oil price shock, ties the...

Two explanations are given for why nominal or real returns differ across currencies: foreign exchange risk premia and systematic (rational) forecast errors. This study reexamines three parity conditions in international finance, uncovered interest parity, purchasing power parity, and real...

A firm is subject to `economic exposure' if changes in exchange rates affect the firm's value, as measured by the present value of its future cash flows. This paper shows that in many forms of competition, including the most commonly studied case of monopoly, the economic exposure of an...

This paper considers two alternative approaches to stabilizing an economy with firm-specific productivity disturbances. The first uses wage contracts tying wages in each firm to these disturbances as well as the price level. The second uses a tax on firms which modifies their supply behavior...

Real exchange rates between the yen and dollar based on general price indexes overestimate the competitiveness of the United States relative to Japan. High productivity growth in the traded sector of the Japanese economy results in a continuous fall in the prices of traded goods relative to...

This paper examines evidence on interest differentials under the Bretton Woods system of fixed exchange rates and under the flexible rate system which succeeded it. Under the Bretton Woods system, many countries resorted to capital controls in an attempt to pursue independent monetary policies....

This paper reexamines the choice between fixed and flexible rates to take into account wage indexation and flexible prices. The model employed is of a small open economy faced by monetary and aggregate demand disturbances originating at ham and abroad. Aggregate supply behavior in this &el...