This paper develops a model of the circumstances under which it is beneficial to participate in a currency area. The proposed two-country monetary model of trade with nominal rigidities encompasses the real and monetary arguments suggested by the optimum currency area literature: correlation of...

This paper studies regimes of managed exchange rates for a small open economy with an integrated capital market, rational expectations in financial markets, sluggish nominal wages and prices, and supply shocks that follow a Brownian motion. Each regime can be characterized by the degree to which...

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of...

Applying the VAR model and using the Treasury bill rate as a monetary policy tool, we find that in the long run, output for Singapore responds positively to a shock to lagged own output and negatively to an innovation to the Treasury bill rate, government debt as a percent of GDP, appreciation...

Diba and Grossman (1987) demonstrated that the conception of a rational bubble as defined by Blanchard and Watson (1982) is impossible. The present paper shows that this impossibility theorem also applies under various imperfections and irrationalities. These are: sticky goods prices, believing...

We provide an overview of the recent developments of the literature on the determinants of long-term capital flows, global imbalances, and valuation effects. We present the main stylized facts of the new international financial landscape in which external balance sheets of countries have grown...

This article provides an overview of recent research into the macroeconomic costs and benefits of monetary unification. We are primarily interested in Europe’s monetary union. Given that unification entails the loss of a policy instrument its potential benefits have to be found elsewhere....

A search-and-matching model of the labor market is incorporated into a small open economy model with nominal rigidities. This allows the behavior of tradable and nontradable sector unemployment rates to be studied under alternative monetary rules. An examination of dynamics in response to shocks...

This paper contributes to the literature on international portfolio choice in several ways. First, I generalize the model of Dunne et al. (2010) and derive order flow as the result of correlated belief changes by heterogeneous investors. This strategy delivers testable implications for the daily...

This paper analyzes the implications of a production technology in developed countries (DC) characterized by the share of imported raw materials coming from the less developed countries (LDC). We focus on the question of how this richer productive structure affects the international transmission...