It is a robust finding that technical trading rules applied to foreign exchange markets have earned substantial excess returns over long periods of time. However, the approach to risk adjustment has typically been rather cursory, and has tended to focus on the CAPM. We examine the returns to a...

This paper investigates whether investors are compensated for taking on commonality risk in equity portfolios. A large literature documents the existence and the causes of commonality in illiquidity, but the implications for investors are less understood. We find a return premium for commonality...

In February 2005 Federal Reserve Chairman Alan Greenspan noticed that the 10-year Treasury yields failed to increase despite a 150-basis-point increase in the federal funds rate as a “conundrum.” This paper shows that the connection between the 10-year yield and the federal funds rate was...

This paper proposes a model of international trade with capital accumulation and financial intermediation. This is achieved by embedding the Melitz (2003) model into an incomplete-markets neoclassical framework with an endogenous credit market. The model preserves the analytical tractability of...

Both global and regional economic linkages have strengthened substantially over the past quarter century. We employ a dynamic factor model to analyze the implications of these linkages for the evolution of global and regional business cycles. Our model allows us to assess the roles played by the...

This paper examines the stimulative effect of central bank forward guidance—the promise to keep future policy rates lower than its policy rule suggests—when the short-term nominal interest rate is stuck at its zero lower bound (ZLB).We utilize a standard New Keynesian model in which forward...

This paper provides a theory to explain the paradoxical features of the great housing boom in China —the persistently faster-than-GDP housing price growth, exceptionally high capital returns, and excessive vacancy rates. The expectation that high capital returns driven mainly by resource...

How do job losers use default -- a phenomenon 6x more prevalent than bankruptcy --as a type of “informal" unemployment insurance, and more importantly, what are the social costs and benefits of this behavior? To this end, I establish several new facts: (i) job loss is the main reason for...

This paper offers a methodological contribution to monetary theory. First, it presents a model economy with cash-in-advance constraints, following the work of Lucas in the early 80’s; then, it specializes the model to preferences and shocks assumed in the Lagos and Wright (2005) framework....

With its interest rate instrument at the zero lower bound, the Federal Open Market Committee has turned to unconventional methods to stimulate economic growth and increase employment. Prominent among these is quantitative easing (QE)—the purchase of a large quantity of longer-term debt....