Several puzzling aspects of the behavior of United States stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends. We call bubbles of this type "intrinsic" bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors. Intrinsic bubbles provide a more plausible empirical account of deviations from present-value pricing than do the traditional examples of rational bubbles. Their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods.

We investigate the pass-through from exchange rates to import prices when firms' future demands depend on current market shares. Foreign firms may either raise or lower their dollar export prices when the dollar appreciates temporarily (i.e., the pass-through may be perverse) and import prices may be more sensitive to expected future than to current exchange rates. We explore whether expected future exchange rates provide a clue to the puzzling recent behavior of U.S. import prices.

[Survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes. We estimate extrapolative, adaptive, and regressive models of expectations. Static or "random walk" expectations and bandwagon expectations are rejected: current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight. In comparing expectations to the process governing the spot rate, we find statistically significant bias.]