This paper examines the effect of financial frictions on the strength of the monetary transmission mechanism. Credit channel theory implies that the transmission mechanism of monetary policy should be stronger in countries with high levels of financial frictions, all else equal. The intuition is...

This paper documents and explains the positive comovement between the external and budget deficits of developing countries for which post-1960 time-series data are available. First, the estimates indicate that the empirical covariance between these deficits is always positive and is...

Relatively little empirical evidence exists about countries' external adjustment to changes in fiscal policy and, in particular, to changes in taxes. This paper addresses this question by measuring the effects of tax and government spending shocks on the current account and the real exchange...