We develop a general equilibrium model with nancial frictions in which internal capital (equity capital) and external capital (bank loans) have different rates of return. Financial development raises the rate of return on external capital but has a non-monotonic effect on the rate of return on...

We develop a model of a small open economy with credit market frictions to analyze the consequences of capital account liberalization. We show that financial opening facilitates the inflows of cheap foreign funds and improves production efficiency. Reforms increasing labor market flexibility can...

Japan’s “two lost decades†perhaps represent an extreme example of a weak recovery from a financial crisis, and are now referred to as “Japanization.†More recently, widespread stagnation in advanced economies in the wake of the global financial crisis led to fears...

Japan’s “two lost decades†perhaps represent an extreme example of a weak recovery from a financial crisis, and are now referred to as “Japanization.†More recently, widespread stagnation in advanced economies in the wake of the global financial crisis led to fears...

The study analyses market perception about the performance of Pakistani commercial banks due to financial liberalisation and deregulation measures taken by the central bank over the last two decades. For this purpose, it uses Survey approach. To augment the results of Survey Based Approach, it...

The recent de-emphasizing of the role of money in both theoretical macroeconomics as well as in the practical conduct of monetary policy sits uneasily with the idea that inflation is a monetary phenomenon. Empirical evidence has, however, been accumulating, pointing to an important leading...

We present a theoretical framework for policy making based on the “impossible trinity†or the “trilemma†hypothesis. A simple optimization model shows that placing more weight in terms of preference for each of the three open macroeconomic policies—exchange rate...

This paper investigates import demand in East Asia. Estimating exchange rate elasticities for countries in the region is difficult because many imports are used to produce goods for re-export. An exchange rate appreciation that reduces East Asian exports will also reduce the demand for imported...

This paper considers how exchange rates affect East Asian trade. The evidence indicates that exports produced within regional production networks depend on exchange rates throughout the region while labor-intensive exports depend on exchange rates in the exporting country. These results make...

This paper examines the impact of sectorial reforms on current account imbalances, with a special focus on the People’s Republic of China (PRC). In particular, we investigate to what extent reforms pertaining to the financial sector, social protection, and healthcare may contribute to a...