Abstract This paper examines the persistence of real exchange rates across 151 countries. We employ univariate time series techniques on a country-by-country basis allowing for deterministic structural breaks and nonlinearities in the adjustment process. Our findings suggest that bilateral exchange rates display higher rates of persistence than multilateral exchange rates, with the latter (former) exhibiting half-lives of less than 1 (2) year(s). Assessing country results by stage of economic development, we find that industrial countries display higher levels of exchange rate inertia than developing countries. We retrieve evidence indicating that higher inflation, nominal exchange rate volatility, trade openness and proximity to reference country are associated with faster rates of real exchange rate convergence. Conversely, international financial integration is found to only play a role at the country group level, with differential effects across cohorts.

Using global data on aggregate stock markets, this paper finds that the capital asset pricing model fares much better than suggested previously. At shorter time horizons, our results also show that the positive risk-reward relation can collapse during times of high volatility. Compared to other countries, we retrieve evidence of lower systematic risks across frontier equity portfolios. We find that countries characterized by higher levels of openness, exchange rate volatility, and larger economic size are exposed to higher systematic covariances with the world stock market. Conversely, we obtain an inverse link between international reserves and systematic risks in national equity.

This paper globally analyzes the bivariate relation between large current account imbalances and the real exchange rate over different degrees of nominal exchange rate variability. Employing both linear and nonlinear panel estimation procedures, we typically find an inverse long-run link between large imbalances and the real exchange rate at lower nominal exchange rate rigidity levels. This is in contrast to the often non-existent or positive comovement that materializes under lower nominal exchange rate variation. Our results thus suggest that greater nominal exchange rate adjustment can induce a stabilizing “current account”-“real exchange rate” relation. Meanwhile, current account adjustment speeds up with more flexible nominal exchange rates. Along the cross-section, the most salient findings are i) the striking positive relation between current account persistence and real exchange rate persistence based on country-specific estimates and ii) the inverse correlation between persistence in either the current account or real exchange rate and nominal exchange rate volatility.

This paper provides a microfoundation of the neoclassical growth theory. To rationalize a substantial share of labor in income despite ongoing automation of tasks, we present a simple model in which demand shifts toward goods of increasing sophistication along a vertically differentiated production structure. Automation of more advanced goods requires increasingly sophisticated capital which remains scarce along the growth path. This is why labor maintains a substantial share in income independent of core parameter assumptions. While our model features an entirely different mechanism, we show that its aggregate representation is the one of a neoclassical model with labor-augmenting technical change.