This study examines the dynamics associated with an economy implementing an Exchange Rate Based Stabilization (ERBS) programs when they are subject to sudden restrictions in international capital flows. In the context of a simple theoretical model, we describe the pressures on a country's...

A currency attack fails on its own when the speculator suffers from her financial problem. This paper extends the existing models and argues that the monetary authority?s willingness to peg and the speculator?s cost of attack are private information. Our model thus accounts for the duration of...

The paper analyzes the transmission mechanisms of fiscal shocks in a two-country general equilibrium model with sticky prices in line with the new open economy macroeconomics (NOEM) approach. Specifically, the model allows for both market segmentation and asymmetric preferences. We introduce...

This study intends to determine the relationship existing between the exchange rate regime and real volatility. After revising the theoretical and empirical results of previous research, it is proposed a new methodology that corrects deficiencies of previous empirical papers. The results show...

In post-crisis Asia, all crisis-hit countries (except Malaysia) announced a shift from exchange rate based monetary policy framework to the explicit adoption of inflation targeting that uses interest rates as the key monetary policy operating instrument. In this study, we examine the empirical...

This paper investigates whether the presence of financial frictions can help explain the differences in the variability of output and inflation between the Pre- and the Post-Volcker periods. I use a limited participation model with credit market imperfections, in which financial frictions may...

Various approaches to optimal monetary policy have been used to select time-invariant policy rules, including the timeless perspective approach by Woodford (1999) and the unconditional expected utility criterion of McCallum (2000). In this paper, we argue instead that policy rules should be...

Under a Bayesian framework of model uncertainty, closed economy models of monetary policy typically suggest that policy responses should be attenuated. Conversely, under a Knightian view of uncertainty, where the policymaker cannot specify probabilities across alternative models, intensifying...

This paper proposes a simple framework for analyzing a continuum of monetary policy rules characterized by differing degrees of credibility, in which commitment and discretion become special cases of what we call quasi commitment. The monetary policy authority is assumed to formulate optimal...

The research addresses three methodological questions that are central to effective exchange rate and macroeconomic management: what are the determinants and how to model the real exchange rate (RER), how to estimate its equilibrium level, and how to quantify the likely impact of misalignment on...