Paradoxically, high-investment and high-growth developing countries tend toexperience capital outows. This paper shows that this allocation puzzle can beexplained simply by introducing uninsurable idiosyncratic investment risk in theneoclassical growth model. Using a sample of 67 countries...

In this paper we study the effect of NAFTA on the responsiveness of Mexican economy toreal exchange rate shocks. We argue that, by opening the U.S. and Canadian markets toMexican goods, NAFTA made it easier for domestic producers to take advantage of theopportunities brought by the depreciation...

The surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice, an aspect that was largely cast aside when the ad-hoc portfolio balance models of the 1970s were replaced bymodels of optimizing agents. We develop the...

In this paper Friedman (1953) and Mundell's (1968) position favouring flexible over alternative exchange rate regimes is reassessed in the context of international financial market integration...

How does international financial integration a

In an in‡uential series of contributions, Kraay and Ventura (2000, 2003) o¤er a“new rule” for the current account: in response to a temporary income shock, thechange in the current account is equal to the change in saving times the ratio of netforeign assets to wealth. We analyze the...

We develop a new theory of international capital flows based on dispersed in-formation across individual investors. There is extensive evidence of informationheterogeneity within and across countries, which has proven critical to under-standing asset price behavior. We introduce information...

This paper reassesses, at the light of economic and financial theory, the well-documented recent evolution of the euro area public debt and equity markets.

In this study, we first estimate the level of financial integration for twenty five emerging stock markets over the last decade. Using a multivariate GARCH(1,1)-M return generating model allowing for partial market integration as well as for the pricing of systematic emerging market risk, we...

This paper extends Galí and Gertler’s (1999) new hybrid KeynesianPhillips curve to the open economy context. We hypothesise that pricing decisionsdepend on both labour costs and intermediate imported input prices. The results forHong Kong are consistent with the theory if import prices are...