Bond Convenience Yields and Exchange Rate Dynamics

This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalizes both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilibrium convenience yield is nonmonotonic, which generates the reversal of the puzzle. The calibrated model fits exchange rate dynamics very well. I also find direct evidence linking convenience yields to excess currency returns. (JEL E43, E52, F31, F41, H63)

Slow Endogenous Fluctuations in Cortical fMRI Signals Correlate with Reduced Performance in a Visual Detection Task and Are Suppressed by Spatial Attention

Spatial attention improves performance on visual tasks, increases neural responses to attended stimuli, and reduces correlated noise in visual cortical neurons. In addition to being visually responsive, many retinotopic visual cortical areas exhibit very slow (<0.1 Hz) endogenous fluctuations in functional magnetic resonance imaging signals. To test whether these fluctuations degrade stimulus representations, thereby impairing visual detection, we recorded functional magnetic resonance imaging responses while human participants performed a target detection task that required them to allocate spatial attention to either a rotating wedge stimulus or a central fixation point. We then measured the effects of spatial attention on response amplitude at the frequency of wedge rotation and on the amplitude of endogenous fluctuations at nonstimulus frequencies. We found that, in addition to enhancing stimulus-evoked responses, attending to the wedge also suppressed slow endogenous fluctuations that were unrelated to the visual stimulus in topographically defined areas in early visual cortex, posterior parietal cortex, and lateral occipital cortex, but not in a nonvisual cortical control region. Moreover, attentional enhancement of response amplitude and suppression of endogenous fluctuations were dissociable across cortical areas and across time. Finally, we found that the amplitude of the stimulus-evoked response was not correlated with a perceptual measure of visual target detection. Instead, perceptual performance was accounted for by the amount of suppression of slow endogenous fluctuations. Our results indicate that the amplitude of slow fluctuations of cortical activity is influenced by spatial attention and suggest that these endogenous fluctuations may impair perceptual processing in topographically organized visual cortical areas.

Endogenous fluctuations in the dopaminergic midbrain drive behavioral choice variability

Human behavior is surprisingly variable, even when facing the same problem under identical circumstances. A prominent example is risky decision making. Economic theories struggle to explain why humans are so inconsistent. Resting-state studies suggest that ongoing endogenous fluctuations in brain activity can influence low-level perceptual and motor processes, but it remains unknown whether endogenous fluctuations also influence high-level cognitive processes including decision making. Here, using real-time functional magnetic resonance imaging, we tested whether risky decision making is influenced by endogenous fluctuations in blood oxygenation level-dependent (BOLD) activity in the dopaminergic midbrain, encompassing ventral tegmental area and substantia nigra. We show that low prestimulus brain activity leads to increased risky choice in humans. Using computational modeling, we show that increased risk taking is explained by enhanced phasic responses to offers in a decision network. Our findings demonstrate that endogenous brain activity provides a physiological basis for variability in complex human behavior.