The dangers of high capital flow volatility and sudden stops have led economists to promote the use of capital controls as an addition to monetary policy in emerging market economies. This paper studies the benefits of capital controls and monetary policy in an open economy with financial...

This paper explores the nature of macroeconomic spillovers from advanced economies to emerging market economies (EMEs) and the consequences for independent use of monetary policy in EMEs. We first empirically document the effects of US monetary policy shocks on a sample group of EMEs. A...

Using the "trilemma indexes" developed by Aizenman et al. (2008) that measure the extent of achievement in each of the three policy goals in the trilemma--monetary independence, exchange rate stability, and financial openness--we examine how policy configurations affect macroeconomic...

This paper investigates the factors explaining exchange market pressures (EMP) and the hoarding and use of international reserves (IR) by emerging markets during the 2000s, as the Great Moderation turned to the 2008-9 global crisis and great recession. According to our results, both financial...

Using a novel, high frequency dataset on capital control actions in 16 emerging market economies (EMEs) from 2001 to 2012, we provide new insights into the domestic and multilateral effects of capital controls. Increases in capital account openness reduce monetary policy autonomy and increase...

Recent macroeconomic experience has drawn attention to the importance of interdependence among countries through financial markets and institutions, independently of traditional trade linkages. This paper develops a model of the international transmission of shocks due to interdependent...

This paper illustrates the paradox of prudential under-regulation in an economy that adopts financial reform, a reform which exposes the economy to future financial crises. There is individual-uncertainty about the crisis incidence, and the probability of the crisis is updated sequentially...

This paper shows that volatility induces adverse first order welfare effects in countries excluded from the global capital market. This result is illustrated in a model characterized by gains from a greater division of activities, where shocks are persistent. We show that non-linearities...

The paper proposes a two-step approach to assessing the extent to which the fall in credit in crisis-stricken East Asian countries was a supply- or demand-induced phenomenon. The first step is based on the estimation of a demand function for excess liquid assets by commercial banks. Such a...

This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility...