Motivated by the Chinese experience, we analyze an economy where the central bank has access to international capital markets, but the private sector does not. The central bank is modeled as a Ramsey planner who can choose the domestic interest rate and the level of international reserves....

Nominal assets play a major role in international financial markets, while trade in indexed bonds is not empirically relevant. As a result, agents are generally exposed to both price and exchange rate uncertainty. Nonetheless, previous research on net capital flows has assumed the presence of a...

Nominal rigidities due to menu costs have become a standard element in closed economy macroeconomic modelling. The 'New Open Economy Macroeconomics' literature has investigated the implications of nominal rigidities in an open economy context and found that the currency in which prices are set...

Nominal rigidities due to menu costs have become a standard element in closed economy macroeconomic modelling. The ‘New Open Economy Macroeconomics’ literature has investigated the implications of nominal rigidities in an open economy context and found that the currency in which prices are...

Nominal rigidities due to menu costs have become a standard element in closed economy macroeconomic modelling. The 'New Open Economy Macroeconomics' literature has investigated the implications of nominal rigidities in an open economy context and found that the currency in which prices are set...

It is well known that the extent of pass-through of exchange rate changes to consumer prices is much lower than to import prices. One explanation is local distribution costs. Here we consider an alternative, complementary, explanation based on the optimal pricing strategies of firms. We consider...

In this paper, we consider an alternative perspective to China's exchange rate policy. We study a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, we assume limited financial development generating a large...

The paper analyses the impact of financial liberalization and reform in emerging markets on the dynamics of capital flows to these markets, using a simple model of international investors' behaviour. We first show that the gradual nature of liberalization, combined with the cost of absorbing...

The paper analyzes the impact of financial liberalizations and reforms in emerging markets on the dynamics of capital flows to these markets, using a simple model of international investors' behavior. We first show that the gradual nature of liberalizations, combined with the cost of absorbing...

The paper analyses the impact of financial liberalization and reform in emerging markets on the dynamics of capital flows to these markets, using a simple model of international investors’ behaviour. We first show that the gradual nature of liberalization, combined with the cost of absorbing...