Standard two-country macroeconomic models predict that high interest-rate currencies depreciate over time, as arbitrage eliminates profitable carry trade strategies. Empirical studies find that those currencies instead tend to appreciate - this is the "uncovered interest rate parity puzzle."...

We document a novel channel of monetary policy transmission based on credit rating thresholds. Focusing on non-financial U.S. firms between 1990-2007, we find that firms near a rating downgrade are relatively more sensitive to monetary shocks than firms in the middle of the rating distribution....