When the interbank market risk premium soared during the financial crisis, it created a wedge between interest rates actually paid by private agents and the rapidly falling policy rates. Many central banks attempted to improve the situation by supplying liquidity to the domestic interbank...

A dynamic stochastic model of a small open economy with a two-level banking intermediation structure, a risk-sensitive regulatory capital regime, and imperfect capital mobility is developed. Firms borrow from a domestic bank and the bank borrows on world capital markets, in both cases subject to...

We use a cross-country panel framework to analyze the effect of net official flows (chiefly foreign exchange intervention) on current accounts. We find that net official flows have a large but plausible effect on current account balances. The estimated effects are larger with instrumental...

What explains differences in the crisis impact across developing countries and emerging markets? Using cross-country regressions to assess the factors driving the growth performance in 2009 (compared to pre-crisis forecasts for that year), we find that a small set of variables explain a large...

This paper proposes a new perspective on systematic deviations from purchasing power parity. Panel evidence for OECD countries shows that international financial integration increases the national price level under managed exchange rate regimes and lowers the price level under floating exchange...

This paper examines the extent to which foreign borrowing funds private investment, consumption and government expenditure in the United States, the United Kingdom, Australia, and New Zealand (the Anglosphere), advanced economies which have been the world's largest international borrowers since...

This paper develops a flexible price, two-sector growth model with a nominal side to study the role of the exchange rate in transition dynamics. We adopt a standard small open economy model with traded and nontraded goods, where the engines of growth are exogenous productivity improvements and...

Empirical evidence suggests that the flexibility of labor supply is closely related to the dynamic adjustment of the real exchange rate. This paper investigates this relationship in a two-sector dependent economy model. While, the long-run equilibrium real exchange rate is independent of the...

The impact of currency collapses (i.e. large nominal depreciations or devaluations) on real output remains unsettled in the empirical macroeconomic literature. This paper provides new empirical evidence on this relationship using a dataset for 108 emerging and developing economies over the...

A DSGE model is used to examine whether including the exchange rate in the central bank’s policy rule can improve economic performance. Smoothing the exchange rate helps both financially-robust economies and financially-vulnerable emerging economies in handling risk premium shocks and, given a...