We study the performance of the four Western Hemisphere trading blocs during the period 1978-2001. For the North American Free Trade Agreement (NAFTA), trade integration outweighed trade diversion; for MERCOSUR, increased integration and trade diversion went hand in hand; for the Central American...

We apply the fundamentals equilibrium exchange rate (FEER) approach and the Johansen cointegration methodology to investigate the behavior of the real effective exchange rates of the two monetary unions of the CFA franc zone (CEMAC and WAEMU) vis-à-vis their long-run equilibrium paths. For both...

We assess the competitiveness of Mauritius in recent years using two approaches. First, we estimate the difference between the equilibrium and the actual real exchange rate using four methods: the macroeconomic balance approach, the single-equation fundamentals approach, the capital-enhanced...

The Dominican Republic and Haiti share the island of Hispaniola and are broadly similar in terms of geography and historical institutions, yet their growth performance has diverged remarkably. The countries had the same per capita real GDP in 1960 but, by 2005, the Dominican Republic's per...

Malaysia was hit hard by the global financial crisis of 2008-09. Anticipating the downturn that would follow the episode of extreme financial turbulence, Bank Negara Malaysia (BNM) let the exchange rate depreciate as capital flowed out, and preemptively cut the policy rate by 150 basis points....

Using a unique dataset with information on the currency composition of firms' assets and liabilities in six Latin-American countries, I investigate how the choice of exchange rate regime affects firms' foreign currency borrowing decisions and the associated currency mismatches in their balance...

This paper develops a cost-benefit approach that helps to quantify the optimal level of international reserves in low-income countries, focusing on the role of reserves in preventing and mitigating absorption drops triggered by large external shocks. The approach is applied to a sample of 49...

Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-noc default costs. We propose instead a general equilibrium model of both...

A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent...

We study exchange rate and equity price dynamics, in general equilibrium, in the presence of news shocks about future productivity and monetary policy. We identify a condition under which these asset prices become more volatile without affecting the volatility of the underlying processes-a...