In a dual-currency, flexible exchange rate model, both nominal and real foreign exchange premia depend on investor risk attitudes, consumption parameters, and the stochastic structure of currency and commodity supplies. When supplies are random, their joint correlation structure determines the sign of the premia. If the money supplies are identically distributed, then all foreign exchange premia, regardless of the currency of denomination, are zero. A positive correlation between the value of a country's currency and its nominal interest rate need not indicate real interest rate movements. Relative bond prices can be negatively correlated with the terms of trade.

In a dual‐currency, flexible exchange rate model, both nominal and real foreign exchange premia depend on investor risk attitudes, consumption parameters, and the stochastic structure of currency and commodity supplies. When supplies are random, their joint correlation structure determines the sign of the premia. If the money supplies are identically distributed, then all foreign exchange premia, regardless of the currency of denomination, are zero. A positive correlation between the value of a country's currency and its nominal interest rate need not indicate real interest rate movements. Relative bond prices can be negatively correlated with the terms of trade.

In a dual-currency, flexible exchange rate model, both nominal and real foreign exchange premia depend on investor risk attitudes, consumption parameters, and the stochastic structure of currency and commodity supplies. When supplies are random, their joint correlation structure determines the sign of the premia. If the money supplies are identically distributed, then all foreign exchange premia, regardless of the currency of denomination, are zero. A positive correlation between the value of a country's currency and its nominal interest rate need not indicate real interest rate movements. Relative bond prices can be negatively correlated with the terms of trade.

A monetary model of asset pricing is used to explain observed correlations between money velocity and stock prices. Output stocks cause velocity and nominal stock prices to move in opposite directions but may cause velocity and deflated stock prices to move in the same direction. Although monetary shocks are neutral, changes in monetary expectations have real effects because of their impact on the expected purchasing power of money balances carried into the future. Thus changes in expected monetary growth alter expected real equity returns and inflation, and changes in monetary uncertainty alter the equity risk premium.

A monetary model of asset pricing is used to explain observed correlations between money velocity and stock prices. Output stocks cause velocity and nominal stock prices to move in opposite directions but may cause velocity and deflated stock prices to move in the same direction. Although monetary shocks are neutral, changes in monetary expectations have real effects because of their impact on the expected purchasing power of money balances carried into the future. Thus changes in expected monetary growth alter expected real equity returns and inflation, and changes in monetary uncertainty alter the equity risk premium.