We model a typical Asian-crisis-economy using dynamic general equilibrium tech-niques. Exchange rates obtain from nontrivial fiat-currencies demands. Sudden stops/bank-panics are possible, and key for evaluating the merits of alternative ex-change rate regimes. Strategic complementarities...

This paper presents evidence that the bid-ask spreads in euro rates increased relative to the corresponding bid-ask spreads in the German mark (DM) prior to the creation of the currency union. This comes with a decrease in transaction volume in the euro rates relative to the previous DM rates....

This paper attempts to answer two important questions in the context of Asian exchange rate regimes with respect to the choice of anchor currencies and dynamic preferences for exchange rate pegging. According to our results, the US dollar is the first choice of a de facto peg for many countries...

This paper addresses the issue of the optimal stock of international reserves in terms of a statistical model in which reserves affect both the probability of a Sudden Stop-as well as associated output costs-by reducing the balance-sheet effects of liability dollarization. Optimal reserves are...

While the global financial crisis was centered in the United States, it led to a surprising appreciation in the dollar, suggesting global dollar illiquidity. In response, the Federal Reserve partnered with other central banks to inject dollars into the international financial system. Empirical...

Many works analyzing the Mundell-Fleming dictum compare the predetermined exchange rate regime and the monetary targeting regime under flexible exchange rates. Reflecting on the fact that many emerging market countries have shifted to the regime of inflation targeting, this paper aims to extend...

In this paper we connect the events of the last twelve months, "The Panic of 2008" as it has been called, to the demand for international reserves. In previous work, we have shown that international reserve demand can be rationalized by a central bank's desire to backstop the broad money supply...

One of the most pressing issues concerning policymakers today is the choice of an exchange rate regime. Despite the intricacies of this problem, monetary authorities could narrow down their list of options if they were to focus on the following principles: full implementation to ensure...

The currency board (Convertibility) collapsed between December 2001 and January 2002, after almost 11 years in force. The trends leading to the meltdown continued in the following months, plunging half of the population into poverty and one third into extreme poverty. Only six months later, the...

We develop a small open economy model with capital, sticky prices, and a simple form of financial frictions. We compare welfare levels under three alternative rules: a domestic inflation-based Taylor rule, a CPI inflation-based Taylor rule, and an exchange rate peg. We show that the superiority...