This paper characterizes the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side (i.e., the anticipation that the taxpayer will bailout lending banks if large default will occur) and sovereign risk on the borrower side. The impacts of such...

This paper studies how capital market imperfections affect the welfare effects of forming a currency union. The analysis considers a bank-only world where intermediaries compete in Cournot fashion and monitoring and state verification are costly. The first part determines the credit market...

This paper examines the effect of volatility on the costs and benefits of financial market integration. The basic framework combines the costly state verification model and the contract enforceability approach. The welfare effects of financial market integration are assessed by comparing welfare...

This paper studies the welfare effects of financial integration in the presence of moral hazard. Entrepreneurs face a trade off between risk and return. Banks may mitigate the resultant excessive risk by costly monitoring, where greater risk reduction requires more resources devoted to risk...

This paper evaluates the welfare implications of privatization in emerging market economies, in countries where policies are determined by the median voter. We show that privatization may lead to large efficiency gains by changing the menu of taxes. We illustrate this point with two examples....

This paper develops an analytical framework for the analysis of adjustment to adverse shocks in the presence of limited access to the international credit market. We consider an economy producing traded and non-traded goods and experiencing a permanent, unanticipated drop in the availability of...

This paper highlights the rare conditions leading to international cooperation, and the reasons why eliciting this cooperation may be beneficial in preventing adverse tail shocks from spiraling into global depressions. In normal times, deeper macro cooperation among countries is associated with...

Economic integration has brought about not only benefits and opportunities but also required adjustment, especially for the youth entering the labour force. The lower growth rates characterizing the post Global Financial Crisis era and the concerns about income inequality put to the fore the...

This paper investigates the association between greater income inequality, de-facto fiscal space, and sovereign spreads. Using data from 50 countries in 2007, 2009 and 2011, we find that higher income inequality is associated with a lower tax base, lower de-facto fiscal space, and higher...