This paper examines the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. The first part uses a simple three-period model to show that, if households expect to face binding borrowing constraints in bad states of nature, savings rates will respond...

This paper analyzes the implication of inefficient financial intermediation for crisis management in a country where firms are highly-indebted. The analysis is based on a model in which firms rely on bank credit to finance their working capital needs and lenders face high state verification and...

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 interprets contagion effects as a perceived increase (triggered by events occurring elsewhere) in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic...

Since the early 1980s, wage dispersion and the ratio of skilled to unskilled employment have increased significantly in several industrial countries. A number of economists have attributed these trends to skill-biased technical progress. This paper studies the wage and employment effects of...

This paper analyzes the macroeconomic effects of fiscal and labor market policies in a small open developing country. The basic framework considers an economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency...

This paper reviews recent developments in the theoretical and empirical analysis of balance-of-payments crises. A simple analytical model highlighting the process leading to such crises is first developed. The basic framework is then extended to deal with a variety of issues, such as:...

This paper studies the endogenous determination of pricing to market, in a model with time dependent transportation costs, where the future terms of trade are random. Allowing time dependent transportation costs adds a dimension of investment to the pre-buying of imports, implying that financial...

The purpose of this paper is to explain the reluctance of developing countries to open up their capital market to foreigners, and the conditions inducing an emerging market economy to switch its policies. We consider an economy characterized initially by a one-sided openness to the capital...

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...