This paper proposes a measure of exchange rate disconnect. Working in a two-currency international economy, our theory … of economies to reveal a geography of disconnect. Linking theory to returns of international bonds and equities, we …

We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets … their required compensation for holding currency risk, thus impacting both the level and volatility of exchange rates. Our … theory of exchange rate determination in imperfect financial markets not only rationalizes the empirical disconnect between …

frictions for business cycle volatility. In our empirical analysis, we demonstrate that stylised facts suggest that countries … with more developed financial systems have lower business cycle volatility. Financial openness has no strong impact on … business cycle volatility, in contrast. In our theoretical analysis, we use a dynamic general equilibrium model to study the …

markets can address the exchange rate volatility puzzle, the exchange rate persistence puzzle, the consumption real exchange …