This paper investigates to what extent Chinese monetary policy is constrained by the dollar peg. To this end, we use a cointegration framework to examine whether Chinese interest rates are driven by the Fed's policy. In a second step, we estimate a monetary model for China, in which we include...

This paper assesses the role of sovereign risk in explaining macroeconomic fluctuations in Turkey. We estimate two versions of a simple New Keynesian small open economy model on quarterly data for the period 1994Q3-2008Q2: A basic version and a version augmented by a default premium on...

We analyse the poisonous interaction between bank rescues, financial fragility and sovereign debt discounts. In our model balance sheet constrained financial intermediaries finance both capital expenditure of intermediate goods producers and government deficits. The financial intermediaries face...

We investigate the effectiveness of "Keynesian" fiscal stimuli when government deficits and debt rollovers are (possibly partially) financed by balance sheet constrained financial intermediaries. Because financial intermediaries operate under a leverage constraint, deficit financing of fiscal...