This paper analyzes the expenditure policy of the public sector and risk in a two-country stochastic AK growth model, provided that public spending is productivity- and volatility-enhancing. First we derive the world macroeconomic equilibrium. Then we study the impact of changes in exogenous...

The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some (e.g., Calvo and Reinhart 2001, 2002) argue...

Since the start of the 1990s, several countries have abandoned fixed- but-adjustable exchange rate regimes. The tendency towards floating exchange rate regimes, or alternatively monetary unions, has given rise to a debate on the disappearance of pure currency crises, and the literature has...

Studies of disaggregated international price data document a robust, positive relationship between nominal exchange (NER) volatility and the variability of international relative prices. This relationship is interpreted as evidence that sticky prices rather than trade frictions are the source of...

Engel and West (2004a) provide an explanation to reconcile the random walk behavior of exchange rate and linear present value asset pricing models. In this paper, we study the long horizon property of exchange rate under Engel-West explanation. It is found that the long horizon data can not...

This paper examines a two-country new open economy macroeconomics model with price stickiness a la Taylor, where exporters' choice of invoicing currency is endogenous. Besides generating incomplete pass-through, the model yields four main results. First, firms' invoicing strategy is generally...

This paper reviews the theoretical functions, history, and policy problems raised by the international capital market. The goal is to offer a perspective on both the considerable advantages the market offers and on the genuine hazards it poses, as well as on the avenues through which it...

The equilibrium exchange rate is a closely scrutinized variable in international finance and monetary economics. A model to estimate an equilibrium exchange rate is proposed in this paper. It consists of several building blocks: a state-space structure, uncovered interest parity and the...

Now that four years have passed since the introduction of the euro as a commercial currency, it has become possible to assess many arguments made in the abstract during the 1990s about the implications of monetary union. This contribution does precisely that. In brief, the euro zone still falls...

In this paper labour productivity growth and its impacts are studied at the industry level. The development of productivity is analysed in 54 industries in 14 EU countries and in the US between 1979 and 2001. The conclusion of the study is that the industry structure that leads to fast...