Economists generally assert that countries sacrifice monetary independence when they peg their exchange rates. At the same time, central bankers frequently assert that pegging an exchange rate does not eliminate the independence of monetary policy. This paper examines the effects of money-supply...

This paper shows how open-economy implications of alternative business-cycle models can be used to discriminate between those models. Open-economy versions of two well-known models are presented: a model with predetermined nominal wages and a model in which nominal disturbances are misperceived...

This paper explores the main channels of international transmission of economic disturbances under the Bretton Woods System and presents evidence on the short-run international transmission of inflation under that system. There appears to have been little short-run international transmission of...

This paper proposes a new explanation for the greater variability of real exchange rates under pegged than under floating nominal exchange rate systems. The explanation hinges on the propensity of governments to use international trade restrictions and financial restrictions for...

A class of real business cycle models suggests that shocks to technology can explain aggregate fluctuations in output and employment. This paper begins from the premise that shocks to productivity may vary across industries but are unlikely to vary systematically across national boundaries for a...

This paper examines the effects of fiscal policies in an open economy when international financial markets are well developed. Consumers use these markets to hedge against the risk of uncertain future changes in government policies. These portfolio allocations alter the effects of changes in...

This paper examines the relationship between inflation, exchange rates, and the pattern of international trade and payments in a small economy with utility-maximizing agents and a transactions demand for money. Fully anticipated inflation has real effects in the model through its role as a tax...

We show that international trade in goods is the main determinant of international equity portfolios and offers a compelling -- theoretically and empirically -- resolution of the portfolio home bias puzzle. The model implies that investors can achieve full international risk diversification if...

In this paper we develop a general equilibrium model of exchange rates where expectations of future variables directly affect the current exchange rate through an 'asset-market' term. This term, which results from the assumptions of incomplete asset markets and segmented product markets, does...