A policy maker knows two models. One implies an exploitable inflation-unemployment trade-off, the other does not. The policy maker's prior probability over the two models is part of his state vector. Bayes' law converts the prior probability into a posterior probability and gives the policy...

We study how a concern for robustness modifies a policymaker's incentive to experiment. A policymaker has a prior over two submodels of inflation-unemployment dynamics. One submodel implies an exploitable trade-off, the other does not. Bayes' law gives the policymaker an incentive to experiment....

We characterize an international production economy in which (1) agents have Epstein and Zin (1989) preferences, (2) international productivity frontiers are exposed to both short- and long-run shocks, and (3) consumption features a larger degree of home bias relative to investment. Under our...

Focusing on US and UK, we document that both the Backus and Smith (1993) finding, concerning the low correlation between consumption differentials and exchange rates, and the forward-premium anomaly, concerning the tendency of high interest rate currencies to appreciate, have become more severe...

country, representative consumers economy, we document that the risk-sharing scheme produces a non trivial dynamics of net exports and it is also capable of explaining the tendency of high interest rate currencies to appreciate.

We propose a frictionless general equilibrium model in which two international consumers with recursive preferences trade two consumption goods and a complete set of date and state contingent securities. Consumption home bias and concern for the temporal distribution of risk generate rich...