Current account crises in emerging markets are characterized by large increases in interest rates, big drops in output, and large real currency depreciations. Current models of crisis with financial frictions do not generate very large movements in these variables. Recent work has shown that the...

In this paper, we use an open economy DGE model (SIGMA) to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labor income tax rate. Our...

We assess the ability of new open economy models to match OECD business cycle data. We adopt a canonical new open economy model with varying degrees of nominal inertia, monopolistic competition and distribution costs and assess the contribution of each facet of this model to help explain jointly...

Recent policy proposals call for setting up a benchmark indexed bond market to prevent "Sudden Stops". This paper analyzes the macroeconomic implications of these bonds using a general equilibrium model of a small open economy with financial frictions. In the absence of indexed bonds, negative...

The goal of the paper is to analyze how financial and economic crises affect the relation between capital flows and their determinants. We develop a model of foreign portfolio investment (FPI) and foreign direct investment (FDI), and apply it to Turkey using an endogenous break analysis and...

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...

In this paper, we investigate the behavior of the exchange rate within the framework of an asset pricing model. We assume boundedly rational agents who use simple rules to forecast the future exchange rate. They test these rules continuously using two learning mechanisms. The first one, the...