I study the effect of a temporary budget deficit, which is financed in the international capital market, on the exchange rate. First, I show that the exchange rate depreciates both in the short and in the long run if the government finances the deficit by selling debt denominated in foreign...

This paper shows that governments’, rather than individuals’, inhibitions are the only source of segmentation in international capital markets. The paper specifically focuses on two countries, Japan and the U.S., to test the integration of international capital markets. In Japan, the...

I study the effect of government spending on the real exchange rate in a model exhibiting complementarily between consumption at different points in time. I show that the standard result of fiscal expansions causing real appreciations may hold, although not always, in this intertemporal...

A defining characteristic of bank loans is that they are not resold once created. Yet, in 1989 about $240 billion of commercial and industrial loans were sold, compared to trivial amounts five years earlier. Selling loans without explicit guarantee or recourse is inconsistent with theories of...

We model the demand for transactions services and liquidity in an economy with asymmetrically informed agents. It is shown that informed agents can systematically take advantage of agents who are relatively uninformed but who have unexpected needs to trade. This causes certain financial...

This paper demonstrates that if banks are faced with significant competition for deposit financing, as well as regulatory constraints in the form of required capital and/or reserves, banks cannot be profitable solely by holding marketable assets. They must provide other services, such as...