This paper deals with the early stages of transformation of centrally-planned economies (CBEs) into market economies during which expectations playa key role. It focuses on the transitional phase during which the economy is not any more a CPE but has not yet become a market economy. During this...

This paper identifies obstacles hindering the transformation of centrally-planned economies (CPEs) into well-functioning market economies. The analysis is motivated by the recent experience with economic transformation and restructuring in Eastern Europe and the U.S.S.R. The economic system in...

This paper addresses the issue of the optimal stock of international reserves in terms of a statistical model in which reserves affect both the probability of a Sudden Stop-as well as associated output costs-by reducing the balance-sheet effects of liability dollarization. Optimal reserves are...

Using a sample of emerging markets that are integrated into global bond markets, we analyze the collapse and recovery phase of output collapses that coincide with systemic sudden stops, defined as periods of skyrocketing aggregate bond spreads and large capital flow reversals. Our findings...

Using a sample of 32 developed and developing countries we analyze the empirical characteristics of sudden stops in capital flows and the relevance of balance sheet effects in the likelihood of their materialization. We find that large real exchange rate (RER) fluctuations coming hand in hand...

This note is motivated by trying to understand the macroeconomic implications of assuming that periods of financial bonanza and turmoil are driven by financial innovation and collapse in line with the "bank run" literature of the Diamond-Dybvig (1983) variety. Bypassing a host of important but,...

This paper argues that the globalization of securities markets may promote contagion among investors by weakening incentives for gathering costly country-specific information and by strengthening incentives for imitating arbitrary market portfolios. In the presence of short-selling constraints,...

Using a sample of 110 developed and developing countries for the period 1990-2004 we analyze the empirical characteristics of systemic sudden stops (3S) in capital flows --understood as large and largely unexpected capital account contractions that occur in periods of systemic turmoil -- and the...

The paper argues that Emerging Market economies (EMs) face financial vulnerabilities that weaken the effectiveness of a domestic Lender of Last Resort (LOLR). As a result, monetary policy is inextricably linked to the state of the credit market. In particular, the central bank should be ready to...

The Asian crisis took place against a background of exchange rate regimes that were characterized as soft pegs. This has led many analysts to conclude that the peg did it' and that emerging markets (EMs) should just say no' to pegged exchange rates. We present evidence that EMs are very...