Currency crises are usually associated with large real depreciations. In some countries real depreciations are perceived to be very costly(''fear of floating''). In this paper we try to understand the reasons behind this fear. We first look at episodes of currency crises in the '90s and...

An important feature of transition economies such as the Central and Eastern European countries is the so-called phenomenon of dollarization. It is of particular interest since extensive currency substitution not only makes domestic monetary and fiscal policies less effective, it also makes...

We examine optimal policy in an open-economy model with uncertainty and learning, where monetary policy actions affect the economy through the real exchange rate channel. Our results show that the degree of caution or activism in optimal policy depends on whether central banks are in coordinated...

This paper exhibits and quantifies a new theoretical channel of the non-neutrality of inflation transiting through capital market imperfections. Unconstrained households change their financial position in front of a change in the inflation rate, whereas constrained households can not. Thus...

In this paper, I estimate an open economy DSGE model for the Taiwanese economy. The model features multiple sources of real and nominal rigidities, including price and wage stickiness, investment and bond adjustment costs, as well as incomplete pass-through of exchange rates. Contrary to the...

We study in a VAR model the effects of monetary policy shocks with new Italian flow of funds data for 1980-2002. First, our results are consistent with the literature, without being affected by commonly found puzzles. Second, new features of the transmission of monetary policy shocks to the...

We study how well a New Keynesian business cycle model can explain the observed behavior of nominal interest rates. We focus on two puzzles raised in previous literature. First, Donaldson, Johnsen, and Mehra (1990) show that while in the U.S. nominal term structure the interest rates are...

Past empirical research on monetary policy in open economies has found the “delayed overshootingâ€, the “forward discount†and the “exchange rate†puzzles. We revisit the effects of monetary policy on exchange rates by applying Uhlig's (2005) identification procedure...

The method of maximum likelihood is used to estimate a Dynamic Stochastic General Equilibrium business cycle model that combines elements of existing sticky-price and limited-participation specifications. Sticky prices are incorporated, following Rotemberg (1982), by assuming that...