This paper studies the different economic configurations that may give rise to incomplete fiscal decentralization, with the vertical imbalance problem associated to it. Particularly, we look at an economy which has given up monetary policy and cannot monetize national or sub-national government...

This paper provides a general approach in the framework of a complete markets stochastic overlapping generations model to assess whether debt Ponzi schemes are feasible and Pareto-improving. We derive conditions in terms of bond interest rates of different maturities which can be used to assess...

This paper examines how the choice of exchange rate regime can signal financial rectitude and, in so doing, influcence a country's ability to borrow internationally in domestic currency. We develop a model in which the constant probability of a 'type change' creates incentives for disciplined...

This paper investigates implications of nominal rigidities for the risk premium. We use Obstfeld and Rogoff (1998) type DSGE model equipped with nominal rigidities, imperfect market competitions, a production sector, and a money-in-the-utility function. For a monthly frequency, we generate...

This paper investigates whether there is a link between financing costs and international trade patterns, and if so, whether this link is determined by the strength of trade and financial ties between trading partners. The potential importance of these considerations stems from the fact that...

This paper explores the case of a sovereign indebted country facing a choice of economic policy today that will determine the country's ability to continue its debt servicing in the future. If the sovereign undertakes an unsound economic policy it will repudiate its debt with certainty;...

In this paper we study the question of debt sustainability from a risk management perspective. The debt accumulation equation for any country involves variables that are stochastic and closely intertwined. When these aspects are taken into consideration the notion of debt sustainability is...

We present the first firm-level analysis of stock market liberalization on investment. In the year that an emerging economy liberalizes, the growth rate of its typical firm^Òs capital stock exceeds the pre-liberalization mean by 4.1 percentage points. In each of the next three years the average...

The importance of currency and maturity mismatches in the debt structure of emerging markets is an issue that can hardly be overemphasized. Yet, while many papers have explained how imbalances in the asset and liability structure of emerging markets can cause currency and financial crises, the...

Are lending contracts between international financial institutions (IFIs) and sovereign borrowers optimal? To address this question this paper builds on two ideas. First, the prospect of future debt relief can make it profitable for an IFI to continue lending even if lending contracts are...