We study the impact of diverse beliefs on conduct of monetary policy. We use a New Keynesian Model solved with a quadratic approximation. Aggregation renders the belief distribution an aggregate state variable. Diverse expectations change standard results about a smooth trade-off between...

This paper introduces money into an overlapping generations model with endogenous growth. The model, due to Docquier et al. (2007), exhibits a positive intergenerational externality which precludes its laissez-fair equilibrium to be optimal even if the government can control the level of...

We analyze whether or not the globalization of capital, ‘disciplines' governments and improves governance. We demonstrate that globalization affects governance, by increasing a country's vulnerability to sudden capital flight. This increased threat of capital flight can discipline governments...

We analyze the long-run and short-run implications of financial liberalization in a small open economy. Our main results are as follows. First, whether financial deregulation in one sector can improve production efficiency may depend on financial regulation in other sectors. Second, financial...

I find that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet or the monetary base, that is so-called quantitative easing. The transmission mechanism turns out to be different compared to traditional interest rate innovations: whilst the...

The paper models the interaction between risk taking in the financial sector and central bank policy for the case of pure illiquidity risk. It is shown that, when bad states are highly unlikely, public provision of liquidity may improve the allocation, even though it encourages more risk taking...

Using Swiss data from 1983 to 2008, this paper investigates whether growth rates of the different measures of the quantity of money and or excess money can be used to forecast inflation. After a preliminary data analysis, money demand relations are specified, estimated and tested. Then,...

We set up a two-country, regional model of trade in financial services. Competitive firms in each country manufacture untraded consumer goods in an uncertain productive environment, borrowing funds from a bank in either the home or the foreign market. Duopolistic banks can choose their levels of...

We study China's illicit capital flow and document a change in its pattern. Specifically, we observe that China's capital flight, especially the one measured by trade misinvoicing, exhibits a weakened response in the post-2007 period to the covered interest disparity, which is a theoretical...

Both global imbalances and financial market (de-)regulation feature prominently among the potential causes of the global financial crisis, but they have been largely discussed separately. In this paper, we take a different angle and investigate the relationship between financial market...