In the past three decades the stock of assets and liabilities of developingcountries measured as a ratio of GDP has tripled. It is commonly believed that anincrease in opportunities for diversifying risk allows more consumption smoothing.However, the data show that volatility of consumption in...

Access to private capital markets is the most salient difference between emerging market economies and other developing countries. However, in contrast to developed economies, emerging markets have had a troubled relationship with capital fows. In particular, balance of payments and debt crises...

We develop a framework to study the effects of policies of uncertain duration onconsumption dynamics under both complete and incomplete markets. We focus on the dynamicimplications of market incompleteness, specifically on the lack of state-contingent bonds. Twopolicies are considered: pure...

In this paper we present evidence that capital account reversals have become more severe foremerging markets. Because policy options are limited in the midst of a capital market crisisand because so many countries have already had crises recently, we focus on some of thepolicies that could...

In recent years, many countries have suffered severe financial crises, producing a staggering tollon their economies, particularly in emerging markets. One view blames fixed exchange rates--“soft pegs”--for these meltdowns. Adherents to that view advise countries to allow theircurrency to...

Exchange-rate-based inflation stabilization programs cause a sizable loss of inflation tax revenue and thus open a fiscal gap. The stabilization literature usually assumes that this gap can be closed by raising lump-sum (nondistortionary) taxes and/or cutting lump-sum transfers. As such policies...

Mexico’s financial debacle and its impact on other emerging markets (the Tequila effect)has raised many fundamental questions. Mexico achieved fiscal balance in 1993, undertookseveral fundamental market-oriented reforms, signed a free trade agreement with a very largemarket (the NAFTA), became...

I was invited here to explain about Dollarization, the benefits and costs for the US and thecountries that adopt it. Before I start my formal presentation, I would like to state, in nouncertain terms, that I am a firm supporter of such system for many Emerging Market economies,EM, especially if...

In these notes I lay out basic considerations which I believe are relevant for the design ofmonetary/exchange-rate policy, MEP, in Mexico. In my view, there are no ‘magic’ formulas.For some countries, an iron-clad currency board may be a desirable arrangement, while for othersflexible...

This paper reviews Chilean stabilization policy during the 1990s andargues that, while the merits of Chilean policy should be praised, there are fourpuzzles in conventional interpretations of the Chilean experience worth studying.First, the policy of targeting indexed interest rates does not...