A key challenge for macroeconomic policy in open economies is how to simultaneously manage exchange rates, interest rates and capital account openness - the trilemma. This paper calculates a trilemma index for India and investigates its evolution over time. We find that financial integration has...

A key challenge facing most emerging market economies today is how to simultaneously maintain monetary independence, exchange rate stability and financial integration subject to the constraints imposed by the Trilemma, in the era of deepening globalization. In this paper we study the Trilemma...

Using data from a broad panel of countries at a weekly frequency, we find that local natural disasters have significant effects on global portfolio flows. First, when disasters strike, international investors reduce their net flows to equity mutual funds exposed to affected countries. This only...

Recent studies have shown that disaster risk can generate asset return moments similar to those observed in the U.S. data. However, these studies have ignored the cross-country asset pricing implications of the disaster risk model. This paper shows that standard U.S.-based disaster risk model...

This paper presents a flexible-price small open economy model with a peso problem in productivity states. Agents rationally adjust their beliefs about future productivity growth after the arrival of news. A downward revision of expectations triggers a Sudden Stop, together with large declines in...

In this paper, we develop a financial stress index for France that can be used as a real-time composite indicator for the state of financial stability in France. We take 17 financial variables from different market segments and extract a common stress component using a dynamic approximate factor...

The paper reviews exchange rate options for Mercosur countries. We start from the observation that most of the countries in the region have a longstanding tendency to adopt fixed exchange rates, and ask how such a system could best be designed. The Argentine crisis has demonstrated that...

On January 1,1999 euro became the currency for 11 member states of the European Union. Since then the dollar-euro exchange rate has completed a full turning. Three years of depreciation of the euro followed by three years of appreciation without wild fluctuations asks for an explanation which...

There have been several proposals to reduce the observed volatility of flexible exchange rates. The paper reviews two recent opposite views on the appropriateness of a common world currency for this purpose. Referring to an adequately formulated theory of world money, it is shown that there is...