Under free capital mobility, confidence crises can lead to devaluations even when fixed exchange rates are viable, if fiscal authorities can obtain temporary money financing of deficits. During a crisis domestic interest rates increase, reflecting the expected devaluation. Rather than selling...

High-debt countries may face the risk of self-fulfilling debt crises. If the public expects that in the future the government will be unable to roll over the maturing debt, they may refuse to buy debt today and choose to hold foreign assets. This lack of confidence may then be self-fulfilling....

This paper reviews the monetary transmission mechanism in low income countries (LICs). We use monetary transmission in advanced and emerging markets as a benchmark to identify aspects of the transmission mechanism that may operate differently in LICs. In particular, we focus on the effects of...

The sovereign debt default and the linkages from banking and currency crisis have been rarely explored in the crisis literature. This study attempts to dive into this unexplored area by applying panel data binary choice model on a sample with 20 emerging countries having monthly observations for...

How much of carry trade excess returns can be explained by the presence of disaster risk? To answer this question, we propose a simple structural model that includes both Gaussian and disaster risk premia and can be estimated even in samples that do not contain disasters. The model points to a...

If voters of different countries adhere to different and deeply rooted cultural norms, when these countries interact their leaders may find it impossible to agree on effcient policies especially in hard times. Political leaders’actions are bound by a “conformity constraint”that requires...

We develop a stylised model of multiple equilibria, with country risk spreads at the focus of the analysis. Fears that the country default on its debt triggers a reversal in the direction of inflows of international financial capital raise interest-rate spreads and thus the cost of servicing the...

We scrutinize two strands of received wisdom about debt crises: that which draws a strong contrast between the 1930s and 1980s in extent of default and ease of settlement, and that which attributes the difference to greater government involvement today. Rather than a sharp, dichotomous variable,...

Using firm-level data, we provide evidence that, although monetary policy affects real investment, the effect operates differentially: the greater its export intensity the less a firm is affected by tight money. We examine several interpretations and conclude that the impact is transmitted...

We derive new estimates of total wealth, the returns on total wealth, and the wealth effect on consumption. We estimate the prices of aggregate risk from bond yields and stock returns using a no-arbitrage model. Using these risk prices, we compute total wealth as the price of a claim to...