We show that very little is needed to create liquidity under-supply in equilibrium: only the presence of credit constraints on demand. We show that the under-supply is a non-monotone function of the demand distortion that causes it, a result that may have interesting implications for emerging...

This paper shows that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions...

To understand the consequences of the presence of international safety nets on governments' incentives to undertake reforms, we model IFIs´ interventions as country insurance policies. We find that country insurance (especially when made contingent on negative external shocks) is more likely...

In this paper we review the main features of the Chilean-Style of capital controls during the nineties. In particular, we analyze empirically the effectiveness of the unremunerated reserve requirement (URR) in three key areas: its capacity to open space for monetary policy, its influence on the...

The recent wave of financial crises has fueled the debate on the effect of IFIs intervention on governments' incentives to undertake reforms. In this paper we treat this intervention more generally as a country insurance contract, and examine its implications in a stylized set-up. More...

We analyze optimal ï¬scal,monetary and exchange rate policy in a simple small open econonomy model with price setting frictions.We perform our analysis in the tradition of optimal dynamic Ramsey problems.We characterize optimal allocations and the government policies that implement the optimal...

This paper considers the dynamics for interest rate processes within the Heath, Jarrow and Morton (1992) specification. It is well known that one of the difficulties in using this specification for estimation is the non-Markovian nature of the dynamics. The paper focuses on a fairly broad family...

The literature gives evidence that term spreads help predict output growth, inflation, and interest rates. This paper integrates and explains these predictability results by using an affine term structure model with observable macroeconomic factors. The results suggest that consumers are willing...

This paper investigates the properties of optimal monetary and fiscal policy in a two sector small open economy. If the government can optimally select all possible distorting tax rates, then it can implement Pareto efficient outcomes and the Friedman Rule is found to be a necessary condition...

This paper incorporates the systematic risk of regime shifts into a general equilibrium model of the term structure of interest rates. The model shows that there is a new source of time-variation in bond term premiums in the presence of regime shifts. This new component is a regime-switching...