Consumption and real exchange rates with incomplete markets and non-traded goods
In: Discussion paper series 5580
In: International macroeconomics
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In: Discussion paper series 5580
In: International macroeconomics
In: Working paper series 279
In: Journal of Monetary Economics, Band 51, Heft 3, S. 473-502
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In: FRB of New York Staff Report No. 1015, 2022
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In: Journal of international economics, Band 108, S. S87-S106
ISSN: 0022-1996
In: NBER Working Paper No. w23169
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Working paper
In: CAMA Working Paper No. 14/2017
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Working paper
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Working paper
In: The Scandinavian Journal of Economics, Band 116, Heft 1, S. 58-86
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In: The Canadian journal of economics: the journal of the Canadian Economics Association = Revue canadienne d'économique, Band 45, Heft 2, S. 535-565
ISSN: 1540-5982
Abstract We show that recent explanations of the consumption‐real exchange rate anomaly that rely on goods and financial market frictions are not robust to introducing just one additional international asset. When portfolios are selected optimally, international trade in two nominal bonds implies a consumption‐real exchange rate correlation that is too high compared with the data even when there are many shocks. Monetary policy specification plays a potentially important role for the degree of risk sharing provided by nominal bonds, both in the benchmark model with only tradable and non‐tradable sector supply shocks and also in the model that allows for news.
In: CEPR Discussion Paper No. DP9224
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Working paper
In: Journal of Monetary Economics, Band 53, Heft 3, S. 473-506
In: The economic journal: the journal of the Royal Economic Society, Band 113, Heft 486, S. C103-C124
ISSN: 1468-0297
In: CEP discussion paper 905
This paper analyses the international dimension of fiscal policy using a small open economy framework in which the government finances its spending by levying distortionary taxation and issuing non-state-contingent debt. The main finding of the paper is that, once the open economy aspect of the policy problem is considered, it is not optimal to smooth taxes following idiosyncratic shocks. Even when prices are flexible and inflation can costlessly act as a shock absorber to restore fiscal equilibrium, the presence of a terms of trade externality lead to movements in the tax rate. Also in contrast with the closed economy, the introduction of sticky prices can reduce the optimal volatility of taxes.