This paper assesses the feasibility of forming a common currency in Latin America. First, we examine the cointegration and Granger causality of real effective exchange rates and find evidence supporting a monetary union comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, and...

We introduce equilibrium indeterminacy into a two-country incomplete asset model with imperfect competition and analyze whether self-fulfilling, belief-driven fluctuations (i.e., sunspot shocks) can help resolve the major puzzles of international business cycles. We find that a combination of...

This paper examines the implications for equilibrium determinacy of forward-looking monetary policy rules in a Neo-Wicksellian model that incorporates real balance effects. We show that in closed economies the presence of small, empirically plausible real balance effects significantly restricts...

This paper analyses the necessary and sufficient conditions to ensure that interest rate policy does not introduce real indeterminacy and thus self-fulfilling fluctuations into open economies. A key feature of the model is the incorporation of capital and investment spending into the analysis....

Does theory aid inflation forecasting? To date, the evidence suggests that there is no systematic advantage of theory-based models of inflation dynamics over their astructural counterparts. This study reconsiders the issue by developing a “semi-structural” forecasting procedure comprised of...

Should central banks target producer price inflation or consumer price inflation in the setting of monetary policy? Previous studies suggest that in order to avoid real indeterminacy and self-fulfilling fluctuations, the interest rate rule for open economies should react to producer price...

This paper analyses the necessary and sufficient conditions to ensure that interest rate policy does not introduce real indeterminacy and thus self-fulfilling fluctuations into open economies. A key feature of the model is the incorporation of capital and investment spending into the analysis....

This paper investigates the conditions under which interest-rate rules induce real equilibrium indeterminacy in a two-country, sticky-price, monetary model. Using a discrete-time framework, we employ the two most commonly used timing assumptions on which money balances enter into the utility...