Latin American economies are exposed to substantial external vulnerability. Domestic imbalances and terms of trade shocks are often exacerbated by sudden stops of capital inflow. In this paper we explore ways of overcoming external vulnerability, drawing lessons from a detailed comparison of the...

Standard trade theory suggests that internationalisation of an economy should lead to increased competitive pressures and an improvement in the efficiency with which domestic goods are produced and priced. We examine a number of ways in which the pricing behaviour of the Australian manufacturing...

In this paper we develop a theoretical framework that helps to analyse the role of monetary policy in responding to asset-price bubbles. A large and rapid fall in the nominal price of assets that form the basis of collateral for loans from financial intermediaries can have adverse effects on...

This paper documents the clear change of view, which has taken place in Australia over the past three decades or so, concerning the relevance of the current account deficit for policy. Historical experience under a fixed exchange rate regime suggested that large persistent deficits were...

We use a structural vector autoregression model to characterise the aggregate and industry effects of exchange rate movements on the Australian economy. We find that a temporary 10 per cent appreciation of the real exchange rate that is unrelated to the terms of trade or interest rate...

The terms of trade are subject to both permanent and transitory shocks. Particularly for commodity-producing small open economies, it is sometimes argued that the inability of agents to determine which of these shocks are permanent and which are transitory leads to more macroeconomic volatility...

This paper studies the effect of a shock to resource prices in a small open economy where the stock of natural resources is responsive to exploration activity, and where extraction reduces the future availability of reserves. We show that the effects of a resource price shock on resource...

Kehoe and Perri (2002) show that a two-country business cycle model with endogenously incomplete markets helps to resolve the 'international co-movement puzzle' (Baxter 1995) and the 'quantity anomaly' (Backus, Kehoe and Kydland 1992, 1995). We claim that a similar performance can be achieved...