The paper explores the relationship between trade policy and current accounts. The effect on the current account of a change in protection at home and then abroad is analyzed, assuming that the exchange rate floats. The “savings-and-investment approach” is used. It shows that there is no...

In most macroeconomic models, the substitutability between domestic and foreign goods is calibrated using aggregated data. This imposes homogeneous elasticities across goods, and the calibration is only valid under this assumption. If elasticities are heterogeneous, the aggregate...

The paper argues that the endogenous behavior of monetary authorities provides an important channel through which fiscal policy influences financial variables, and that growing internationalization has increased the sensitivity of financial conditions to fiscal policy. The core of the argument...

This paper discusses the scope, methods, and effects of international coordination of economic policies. In analyzing the scope for and of coordination, the paper addresses the rationale for coordination, barriers to coordination, the range and specificivity of policies to be coordinated, and...

International coordination of macroeconomic policies has attracted much attention in recent years. The main issue has been whether economic performance can be improved by coordination Although it is still a controversial issue many economists have argued that coordination would make a positive...

In the past decade, most of the EU New Member States experienced a severe credit-boom bust cycle. This paper argues that the credit boom-bust cycle was to a large extent the result of factors external to the region (“bad luck”). Rapid credit growth followed from a high liquidity in global...

This paper examines the impact of macroeconomic and financial sector policy announcements in the United States, the United Kingdom, the euro area, and Japan during the recent crisis on interbank credit and liquidity risk premia. Announcements of interest rate cuts, liquidity support, liability...

One plausible mechanism through which financial market shocks may propagate across countries is through the effect of past gains and losses on investors'' risk aversion. We first present a simple model on how heterogeneous changes in investors'' risk aversion affect portfolio decisions and stock...