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This paper analyses a stochastic international growth model with money and country-specific forcing processes for productivity and money growth rates. Monies are required due to cash-in-advance constraints for consumption goods but the liquidity constraints need not be binding for all periods. An individual can trade claims on future currency units for both countries through government bond markets. Each country specializes in the production of one of the goods but individual agents can invest, subject to installation costs, in any available technology. Two versions of the model are simulated in order to compare different degrees of international mobility of physical capital. The moments of the forcing processes are calibrated to a sample of U.S. and Canadian data. A perfectly pooled equilibrium solution is computed numerically, using the Marcet method of parameterized expectations and the moments of the endogenous variables are compared to those for the actual data. The interdependence implied by the model is illustrated by a series of impulse responses. Particular attention is focused on the implications of capital mobility, the asymmetry of the forcing processes across countries, the implications of the liquidity constraints, and the interaction between the real and nominal components of the model. For example, with endogenous production, we find that monetary fluctuations cause business cycle behavior in consumption and investment while the effect on goods and asset prices can be substantially different from that in endowment models. We also find that the effects of monetary policy are transmitted to other countries via exchange rate and terms of trade adjustments.

AbstractWe investigate covariation of payoffs from spot and futures positions in foreign currency markets. The weights in a hedged position are determined by the prices of futures and spot contracts and by foreign and domestic interest rates. Evaluating this hedged position using an intertemporal asset‐pricing model leads to a testable equilibrium model for the time series evolution of the futures basis. Systematic intertemporal risk will be proportional to the conditional covariance of the basis with a generalized discount factor. Empirical implementation uses a conditional capital‐asset‐pricing model (CAPM) in which both the quantity and the price of covariance risk are free to vary over time. However, for this application, the estimated intertemporal risk is insignificantly different from zero, the risk in the futures position offsets that in the spot, providing an effective hedge.RésuméLa covariance des recettes découlant des positions à terme et au comptant prises sur les marchés des devises constitue l'objet principal de cette étude. Les pondéra‐tions utilisées pour la position couverte sont fixées à partir des prix des contrats à terme et des contrats au comptant d'une part et à partir des taux d'intérět étranger et national de l'autre. La position couverte ainsi définie peut alors ětre évaluée à l'aide d'un modèle temporel d'évaluation des actifs financiers. Ceci rend possible la formualtion d'un modèle d'équilibre de l'évolution de la série temporelle de la «base» (basis) sur le marché à terme vérifiable empiriquement. Dans cette formulation, le risque systématique temporel est proportionnel à la covariance conditionnelle de la base ajustée à l'aide d'un facteur d'actualisation généralisé. La vérification empirique de ce modèle utilise un modèle conditionnel d'évaluation des actifs financiers dans lequel le prix ainsi que l'amplitude du risque de covariance peuvent varier librement sur le temps. Cependant, dans cette application, le risque temporel estimé n'est pas significativement différent de zéro, le risque de la position à terme étant contrebalancé par celui de la position au comptant dans le contexte d'une couverture parfaite.