During emerging market crises, domestic agents might have sufficient collateral to borrow from the other domestic agents, but they are unable to borrow from foreigners because the country, as a whole, lacks international collateral. In this setting, we show that an (ex-post) optimizing central...

Firms in emerging markets are exposed to severe financial frictions and credit constraints, that are exacerbated by the sudden stop of capital inflows. Can monetary policy offset this external credit squeeze? We show that although this may be the case during moderate contractions (or in partial...

Firms in emerging markets are exposed to severe financial frictions and credit constraints, that are exacerbated by the sudden stop of capital inflows. Can monetary policy offset this external credit squeeze? We show that although this may be the case during moderate contractions (or in partial...

Firms in emerging markets are exposed to severe financial frictions and credit constraints, that are exacerbated by the sudden stop of capital inflows. Can monetary policy offset this external credit squeeze? We show that although this may be the case during moderate contractions (or in partial...

What makes an asset a “safe asset”? We study a model where two countries each issue sovereign bonds to satisfy investors' safe asset demands. The countries differ in the float of their bonds and their resources/fundamentals available to rollover debts. A sovereign's debt is more likely to be...

What makes an asset a "safe asset"? We study a model where two countries each issue sovereign bonds to satisfy investors' safe asset demands. The countries differ in the float of their bonds and their resources/fundamentals available to rollover debts. A sovereign's debt is more likely to be...

Emerging economies experience sudden stops in capital inflows. As we have argued in Caballero and Krishnamurthy (2002), having access to monetary policy during these sudden stops is useful, but mostly for insurance' rather than for aggregate demand reasons. In this environment, a central bank...