This paper presents a new explanation for the negative correlation between ex post real interest rates and inflation found in earlier empirical studies. We begin by showing that there is a strong negative correlation between the permanent movements in ex post real interest rates and inflation....

Under conventional notions about rational expectations and market efficiency, expected returns differ from the actual expost returns by a forecast error that is uncorrelated with current information. In this paper, we describe how small departures from conventional notions of rational...

Foreign exchange returns exhibit behavior difficult to reconcile with standard theoretical models. This paper asks whether the recent findings of long swings in exchange rates between appreciating and depreciating periods affect estimates of the foreign exchange risk premium. We demonstrate how...