Consumption home bias and exchange rate behavior

Consumption Home Bias and Exchange Rate Behavior∗

This paper studies the response of the nominal exchange rate to monetary shocks in an economy with consumption home bias (CHB) and sticky wages. The importance of accounting for the exchange rate with CHB are twofold. CHB is a consequence of the small open economy assumption when outputs are specialized and fluctuations in the relative price of traded goods generate deviations from purchasing p...

Explaining Home Bias in Equities and Consumption

Domestic investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest, a phenomenon called "equity home bias." In the absence of this bias, investors would optimally diversify domestic output risk using foreign equities. Therefore, consumption growth rates would tend to comove across countries even when output growth...

Real Exchange Rate and Consumption Fluctuations following Trade Liberalization

Two-sector models with traded and non-traded goods have problems accounting for the stylized fact that the real exchange rate appreciates and consumption booms for several years following trade liberalization, or exchange-rate-based stabilization programs, in small open economies. The paper investigates some possible solutions to this ‘price-consumption puzzle’and evaluates their quantitative i...

The Appropriate Exchange Rate System and the Regulation and Forecast of Exchange Rate for Iran's Economy

Scaling Behavior of the Exchange-Bias Training Effect