In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. The...

The thesis of this paper is that more transparent, rule-bound and subtle mechanisms for policy coordination will be needed to ensure the success of an enlarged European Union. A common policy is a public good with distributional implications. Economists have developed a large number of plausible...

It is often argued that tax competition may lead to a "race to the bottom". Such a race may hold indeed in the case of the pure case of factor mobility (such as capital mobility). However, in this paper we emphasize the unique feature of labor migration, that may nullify the "race to the bottom"...

While economic theory highlights the usefulness of flexible exchange rates in promoting adjustment in international relative prices, flexible exchange rates also can be a source of destabilizing shocks. We find that when countries joining the euro currency union abandoned their national exchange...

This paper presents a dynamic stochastic general-equilibrium model with a single friction in all markets: sticky information. In this economy, agents are inattentive because of costs of acquiring, absorbing and processing information, so that the actions of consumers, workers and firms are slow...

Existing models of contagious currency crises are summarized and surveyed, and it is argued that more weight should be put on political factors. Towards this end, the concept of political contagion introduced, whereby contagion in speculative attacks across currencies arises solely because of...

This paper develops methods for evaluating marginal policy changes. We characterize how the effects of marginal policy changes depend on the direction of the policy change, and show that marginal policy effects are fundamentally easier to identify and to estimate than conventional treatment...

The concept of Economic Reform is described as a planned shift from one, Pareto inefficient, but quasi-stable, equilibrium (or 'trap') to a new Pareto superior equilibrium which is, or is designed to become, stable too. The concept is applied to recent 'shock' stabilization programs, with...

In this paper, we use a linked employer-employee database from Brazil to evaluate the wage effects of trade reform. With an aggregate (firm-level) analysis of this question, we find that a decline in trade protection is associated with an increase in average wages in exporting firms relative to...

The paper emphasizes the role of institutions and incentives in the presence of externalities. An economy with multiple public decision makers is likely to experience "overspending," "undertaxing," "overborrowing," and "overinflation" unless effective institutions exist for overcoming...