We focus on the management of highly persistent shocks to aid flows, including HIPC or MDG-related increases in net flows, in the presence of currency substitution by the domestic private sector. Such shocks have beneficent long-run effects, but when currency substitution is high they can...

We show that a combination of temporariness and spending pressure is intrinsic to the aid relationship. In our analysis, recipients rationally discount the pronouncements of donors about the duration of their commitments because in equilibrium they know that some donors will honor those...

This paper examines the relation between fiscal deficits and growth for a panel of 45 developing countries. Based on a consistent treatment of the government budget constraint, it finds evidence of a threshold effect at a level of the deficit around 1.5% of GDP. While there appears to be a...