Lee and Chinn (2006) and Chinn and Lee (2009) decomposed current account and real exchange rate into temporary and permanent shocks and argued that a temporary shock creates the combination of a current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper...

Lee and Chinn (2006) and Chinn and Lee (2009) decomposed the current account and real exchange rate into temporary and permanent shocks, and argued that a temporary shock creates the combination of current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper...

We develop a small open economy, New Keynesian model that incorporates a financial accelerator in combination with liability dollarization. Applying a Ramsey-type analysis, we compare the welfare implications of an optimal monetary policy under flexible exchange rates and an optimal capital...

This paper reexamines optimal debt stabilization policy in a small open economy borrowing from abroad. We incorporate spending reversals as a policy option available to policy-makers for stabilizing public debt. Results show that spending reversals can be welfare-improving and that there exists...

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...

We estimate a small open economy RBC model augmented with a simple form of financial frictions using Spanish data and Bayesian methods. The estimated model matches well with key Spanish business cycle statistics. Using the estimated model, we find that significant welfare benefits may accrue...