, the model provides a closer match between theory and data with respect to the correlation between relative consumption …

choices that maximize the joint welfare of all countries following such a shock, when governments cooperate on both fiscal and … monetary policy. Adjusting to a large negative demand shock requires raising world aggregate demand, as well as redirecting … respond perversely. A negative shock causes an appreciation of the home terms of trade, exacerbating the slump in the home …

Open economy macro theory says that when a country is subject to idiosyncratic macro shocks, it should have its own …

and banking insolvency. This paper provides a theory of the feedback loop that allows for both domestic bailouts of the … banking system and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has …