Motivated by the Chinese experience, we analyze a semi-open economy where the centralbank has access to international capital markets, but the private sector has not. Thisenables the central bank to choose an interest rate different from the international rate.We examine the optimal policy of...

Recent research has shown that relaxing the assumptions of complete informationand common knowledge in exchange rate models can shed light on a wide range ofimportant exchange rate puzzles. In this chapter, we review a number of models wehave developed in previous work that relax the strong...

In the recent decade, capital outows from emerging economies, in the form of a demandfor liquid assets, have played a key role in the context of global imbalances. In this paper,we model the demand for liquid assets by rms in a dynamic open-economy macroeconomicmodel. We nd that the implications...

There has been a long debate about whether speculators are stabilizing or not.We consider a model where speculators have a stabilizing role in normal times,but may also provoke large risk panics. The very feature that makes arbitrageursliquidity providers in normal times, namely their tolerance...