Firm entry dynamics are an integral part of the propagation of financial shocks to the real economy. A VAR documents that adverse financial shocks in the U.S. postwar period are associated with a fall in new firm creation and a fall in firm equity values. We propose a DSGE model with endogenous...

Can a country gain international competitiveness by the design of optimal monetary stabilization rules? This paper reconsiders this question by specifying an open-economy monetary model encompassing a 'production relocation externality,' developed in trade theory to analyze the benefits from...

This paper studies how nontraded goods limit the ability of a country to finance current account deficits. It uses an intertemporal model of the current account for a small open economy where goods are endogenously nontraded due to explicit trade costs. The economy has an endowment of two goods...

This paper advances the new open economy macroeconomic (NOEM) literature in an empirical direction, estimating and testing a two-country model. Fit to U.S and G-7 data, the model performs moderately well for the exchange rate and current account. Results offer guidance for future theoretical...

Open economy macroeconomics typically takes as exogenously given important aspects of the pattern of international trade. This paper shows how heterogeneity in trade costs and heterogeneity in productivities work together to jointly determine features of the pattern of international trade and...

Many countries go to great lengths to manage their exchange rates. Probably the most prominent recent example is the European Monetary Union, where all the members abandoned their national currencies and adopted the euro. A number of developing countries maintain other kinds of regimes of...

Not only are investors biased toward home assets, but when they do invest abroad, they appear to favor countries with returns more correlated with home assets. Often attributed to a preference for familiarity, this ‘correlation puzzle’ further reduces effective diversification. However, a...

Before the global financial crisis of 2007–2009, the United States and several other countries posted large current account deficits. Many of these countries also experienced asset price booms. Evidence suggests the two developments were linked. Rising asset values in the United States...