We examine the relation between real interest rate volatility and aggregate fluctuations for a diverse sample of countries. Compiling a new dataset including emerging and advanced countries, the substantial variation in our data yields novel results: (a) stochastic volatility outperforms Markov‐switching in representing interest rates, (b) some advanced economies can be more volatile than emerging markets, and (c) creditors take on more debt following volatility shocks. We show how an equilibrium business cycle model with uncertainty shocks can generate these facts. Sample heterogeneity produces significant parameter differences, playing an important role in distinguishing the effects of volatility shocks.

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.