We study the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of...

The most prominent characteristic of the Japanese yen/U.S. dollar nominal exchange rate in the post-Plaza Accord era is its near random-walk behavior sharing a common stochastic trend with the monetary base differential, which is augmented by the excess reserves, between Japan and the United...

In an influential paper, Engel and West (2005) claim that the near random-walk behavior of nominal exchange rates is an equilibrium outcome of a variant of present-value models when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one....

This paper investigates whether extending the intertemporal model of the current account to allow for variations in the terms of trade improves its ability to fit the data. It derives a testable present-value representation of the current account that encompasses the Harberger-Laursen-Metzler...