A fast growing literature on small open economy models with pecuniary externalities has provided the theoretical grounds for the policy analysis of macro prudential regulations. Using the framework of Jeanne and Korinek (2010), we investigate whether a subsidy on debt during crises as a form of...

The global financial crisis of 2007-09 has led to an intensive research program analyzing a wide range of issues related to financial crises. This paper presents a summary of a forthcoming book, Financial Crises: Causes, Consequences, and Policy Responses, that includes 19 contributions...

This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper...

This paper investigates the validity of the hypothesis that suggests there is a link between fiscal deficits and inflation in developing countries and further explores this link in the absence of public sector wage expenditure. Sri Lanka, a developing country with a persistent fiscal deficit, a...

The seminal work of Huggett [“The risk-free rate in heterogeneous-agent incomplete-insurance economies”, Journal of Economic Dynamics and Control, 1993, 17(5-6), 953-969] showed that there exists a unique stationary distribution of agent types, given by their individual states of asset and...

Discretionary policymakers cannot manage private-sector expectations and cannot co- ordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. In order to utilize the explanatory power of models with...

Recent studies document the deteriorating performance of forecasting models during the Great Moderation, which conversely implies that forecastability was higher in the preceding era when the economy was unexpectedly volatile. We explain this phenomenon in the context of equilibrium...

Australian employers are obliged by law to make a minimum compulsory contribution as a proportion of salaries into employees’ superannuation (pension) funds. Individuals can also make voluntary contributions on top of the compulsory amount. We examine voluntary contributions amongst two groups...

Using the international investment regime as its point of departure, the paper introduces notions of bounded rationality to the study of economic diplomacy. Through a multi-method approach, it shows that developing countries often ignored the risks of bilateral investment treaties (BITs) until...

Economists have generally ignored the notion that perceived time may differ from clock time. Borrowing from the behavioral psychology literature, we investigate the case of time compression whereby perceived time passes more quickly than actual time. A framework is presented to embed time...