What can explain the persistent fluctuations observed in non-fixed exchange rates? We use a version of the Kareken-Wallace two-country overlapping generations model to explain this empirical phenomenon. The agents use an adaptive learning rule to forecast expected prices in both countries...

Usually cointegrated VAR models of wage formation are analysed in a wage-price setup. However, theoretical wage bargaining models provide the background for a wage-employment setup. The two relations of interest are the labour demand equation from the profit maximizing firms and the (bargained)...

Does capital flow from rich to poor countries? We revisit the Lucas paradox and explore the role of capital account restrictions in shaping capital flows at various stages of economic development. We find that, when accounting for the degree of capital account openness, the prediction of the...

This paper develops a model of the circumstances under which it is beneficial to participate in a currency area. The proposed two-country monetary model of trade with nominal rigidities encompasses the real and monetary arguments suggested by the optimum currency area literature: correlation of...

This paper develops a model of the circumstances under which it is beneficial to participate in a currency area. The proposed two-country monetary model of trade with nominal rigidities encompasses the real and monetary arguments suggested by the optimum currency area literature: correlation of...

This paper investigates the relation between agglomeration of economic activity and the pattern of specialization of countries. We develop a model encompassing a Ricardian comparative advantage, increasing returns to scale, product differentiation, monopolistic competition, trade costs, and...

This paper investigates the effects of fixed versus flexible exchange rate regimes on location choices of firms and on the degree of specialization of countries. In a two-country two-differentiated-good monetary model, demand, supply, and monetary shocks arise after wages are set and prices are...

This paper provides a new model of firm's location choices. It integrates a Ricardian model of comparative advantage with the location effects deriving from trade costs, increasing returns to scale, product differentiation, and monopolistic competition. In a two-region, two-differentiated-good,...

This paper develops a two-country model to investigate the circumstances under which it is beneficial to participate in a currency area. It captures both the real and monetary arguments suggested by the optimum currency area literature in a simple monetary model of trade with nominal rigidities....

Auctions are supposed to procure the best deal money can buy. Yet, practitioners who procure complex contracts by auction are well aware of some basic pitfalls. One concern is that winning bids may not reflect the quality of the bidder but strategic behavior like low-balling bids or...