In a monetary union, inflation rate differentials may be substantial over the business cycle. This paper parameterizes a two-country monetary union in which different economic structures in the two countries generate temporary inflation differentials. Cross-country differences are introduced in...

We estimate a system of equations to analyze whether bilateral trade and financial linkages influence business cycle synchronization directly and/or indirectly. Our paper builds upon the existing literature by using bilateral trade and financial flows for a small, open economy (Spain) as...

Reversals in capital inflows can have severe economic consequences. This paper develops a dynamic general equilibrium model to analyse the effect on interest rates, asset prices, investment, consumption, output, the exchange rate and the current account of a shift in portfolio preferences of...

In 2007, countries in the euro periphery were enjoying stable growth, low deficits and low spreads. Then the financial crisis erupted and pushed them into deep recession, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly,...

Global imbalances and financial market (de)regulation both feature prominently among the potential causes of the global financial crisis, but they have been generally discussed separately. In this paper, we take a different angle and investigate the relationship between financial market...

We study simple fiscal rules for stabilizing the government debt level in response to asymmetric demand shocks in a country that belongs to a currency union. We compare debt stabilization through tax rate adjustments with debt stabilization through expenditure changes. While rapid and flexible...

This paper studies the effects of delegating control of sovereign debt issuance to an independent authority in a monetary union where public spending decisions are decentralized. The model assumes that no policy makers are capable of commitment to a rule. However, consistent with Rogoff (1985)...

Accounting for the pervasive evidence of limited international risk sharing is an important hurdle for open-economy models, especially when these are adopted in the analysis of policy trade-offs likely to be affected by imperfections in financial markets. Key to the literature is the evidence,...

We decompose the correlation between relative consumption and the real exchange rate into its dynamic components at different frequencies. Using multivariate spectral analysis techniques we show that, at odds with a high degree of risk-sharing, in most OECD countries the dynamic correlation...

Exchange rates in Latin America display a large volatility, constitute a central element of the policy strategies and their evolution have an important impact on financial stability due to the dollarization of liabilities which most countries exhibit. However, assessments on equilibrium exchange...