In contrast to earlier work, we study the relation between the current account and interest rate differentials. To do so, we document the relation for international data. We then interpret this relation from a two-country, dynamic, general equilibrium environment. We finally confront the...

This letter presents and assesses a procedure to generate recursive measures of aggregate total wealth and portfolio return. Conceptually, the procedure is more flexible than the classical replacement cost and present value methods. Empirically, the procedure yields recursive measures that...

We propose an empirical procedure, which exploits the conditional heteroscedasticity of fundamental disturbances, to test the targeting and orthogonality restrictions imposed in the recent VAR literature to identify monetary policy shocks. Based on U.S. monthly data for the post-1982 period, we...

This paper gauges the international integration hypothesis, i.e. risk-adjusted anticipated returns are identical, even when financial instruments are traded in different countries. Under time-varying conditional volatility, this hypothesis can be tested by verifying the equality between domestic...

For post-1975 Canadian data, we document the joint behavior of output, the current account, and the interest differential at the business cycle frequency. We also interpret the joint behavior using a simple small open economy model. Our simple model assumes that agents have access to world...

This paper presents and assesses a procedure to estimate conventional parameters characterizing fluctuations at the business cycle frequency, when the economic agents’ information set is superior to the econometrician’s one. Specifically, we first generalize the conditions under which the...

This paper studies the effects of fiscal policies on external and budget deficits. From a tractable small open-economy, overlapping-generation model, the effects are measured by the responses of the external deficit to an increase in the budget deficit due to a tax-cut. The responses are...

Several authors argue that international real business cycle (IRBC) models with incomplete financial markets offer a good explanation of the ranking of cross-country correlations. Unfortunately, this conclusion is suspect, because it is commonly based on an analysis of the near steady state...

This paper assesses the plausibility of popular models of the monetary transmission mechanism for the G7 countries. For this purpose, flexible structural vector autoregressions are used to relaxe the restrictions behind the traditional identifying schemes of monetary-policy shocks and their...

This paper documents the relative importance of global and country-specific shocks for international business cycles. For this purpose, we rely on a symmetric two-country, dynamic, general-equilibrium model with costly, incomplete, international financial markets. We also relate exogenous...