Financial globalization was off to a rocky start in emerging economies hit by Sudden Stops in the 1990s. The surge in foreign reserves since then is viewed as a New Merchantilism in which reserves are a war-chest for defense against Sudden Stops. We conduct a quantitative assessment of this...

We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a...

The interaction between credit frictions, financial innovation, and a switch from optimistic to pessimistic beliefs played a central role in the 2008 financial crisis. This paper develops a quantitative general equilibrium framework in which this interaction drives the financial amplification...

This paper studies overborrowing, financial crises and macro-prudential policy in an equilibrium model of business cycles and asset prices with collateral constraints. Agents in a decentralized competitive equilibrium do not internalize the negative effects of asset fire-sales on the value of...

A dynamic stochastic equilibrium model of a small open economy is used to quantify the macroeconomic effects of introducing capital controls to stabilize the balance of trade. This model focuses on the role of international trade and foreign debt as instruments that help smooth consumption in...

This paper examines trade reforms of uncertain duration undertaken in economies subject to real foreign and domestic shocks. These reforms induce consumption and import booms regardless of whether they succeed or fail and of the degree of intertemporal elasticity of substitution. If tariff...

We develop a two-country, balanced-growth intertemporal general equilibrium model to examine two predictions of the Balassa-Samuelson model, namely that (i) productivity differentials determine the domestic relative price of nontradables and (ii) deviations from purchasing power parity reflect...