We develop a new theory of international capital flows based on dispersed in-formation across individual investors. There is extensive evidence of informationheterogeneity within and across countries, which has proven critical to under-standing asset price behavior. We introduce information...

The U.S. dollar holds a dominant place in the invoicing of international trade, along two complementary dimensions. First, most U.S. exports and imports invoiced in dollars. Second, trade flows that donot involve the United States are also substantially invoiced in dollars, an aspect that has...

The surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice, an aspect that was largely cast aside when the ad-hoc portfolio balance models of the 1970s were replaced bymodels of optimizing agents. We develop the...

This paper extends Galí and Gertler’s (1999) new hybrid KeynesianPhillips curve to the open economy context. We hypothesise that pricing decisionsdepend on both labour costs and intermediate imported input prices. The results forHong Kong are consistent with the theory if import prices are...

This paper is about contagion and interdependence among Central European economies. It investigates the extent to which country-specific shocks spread across these countries beyond the normal channels of interdependence, taking into account common external shocks. To model such shocks, we make...

This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause...

The evidence for a productivity-based explanation for real exchange rate behavior of East Asian currencies is examined. Using sectoral output and employment data, relative prices and relative productivity levels are calculated for China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore,...

The gravity model of trade is used to assess the economic consequences of new borders, which arose in the wake of break-ups of multinational federations in Eastern Europe. The intensity of trade relations among the constituent parts of Czechoslovakia, Soviet Union and the Baltics was very high...

Since the adoption of flexible exchange rates, real exchange rates have been much more volatile than they were under Bretton Woods. However, the volatilities of most other macroeconomic variables have remained approximately unchanged. This poses a puzzle for standard international business cycle...

I show how to implement in a simple manner the comparison of alternative monetary policy rules in a two- country model of the new generation. These rules are: Full Price Stability, Taylor, Fixed and Managed Exchange Rates. I find, first, that the exchange rate dynamic is non-stationary unless...