This paper addresses the issue of the optimal stock of international reserves in terms of a statistical model in which reserves affect both the probability of a Sudden Stop-as well as associated output costs-by reducing the balance-sheet effects of liability dollarization. Optimal reserves are...

While the global financial crisis was centered in the United States, it led to a surprising appreciation in the dollar, suggesting global dollar illiquidity. In response, the Federal Reserve partnered with other central banks to inject dollars into the international financial system. Empirical...

In this paper we connect the events of the last twelve months, "The Panic of 2008" as it has been called, to the demand for international reserves. In previous work, we have shown that international reserve demand can be rationalized by a central bank's desire to backstop the broad money supply...

The paper considers the pros and cons for Canada of monetary union between Canada and the U.S. The current Canadian monetary arrangements, a flexible exchange rate and an inflation target, are contrasted both with a unilateral adoption by Canada of the U.S. dollar and with a full, formally...

During the first two years of monetary union, the euro's weakness surprised most market participants. Explanations proliferated ranging from fundamentals such as differences in growth prospects to psychological factors such as herd behaviour, but no single story fully accounts for the observed...

During the first two years of monetary union, the euro's weakness surprised most market participants. Explanations proliferated ranging from fundamentals such as differences in growth prospects to psychological factors such as herd behaviour, but no single story fully accounts for the observed...

Emerging economies with inflation targets (IT) face a dilemma between fulfilling the theoretical conditions of “strict IT”, which imply a fully flexible exchange rate, or applying a “flexible IT”, which entails a de facto managed-floating exchange rate with foreign exchange (forex)...

This paper draws from Japan's recent monetary experiment to examine the effects of an increase in the inflation target during a liquidity trap. We review Japanese data and examine through a VAR model how macroeconomic variables respond to an identified inflation target shock. We apply these...

Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a...

Central banks can go broke and have done so, although mainly in developing countries. The conventional balance sheet of the central bank is uninformative about the financial resources it has at its disposal and about its ability to act as an effective lender of last resort and market marker of...