We use a simple model of international lending to show that an emerging market borrower who might default can be shut out of international capital markets without warning. A modest haircut on obligations, for example, can shut down lending. Copyright © 2009 The Authors. Journal compilation ©...

In the 1990s, currency crises in Europe, Mexico and Southeast Asia have drawn worldwide attention to speculative attacks on government-controlled exchange rates. To improve our understanding of these events, researchers have undertaken new theoretical and empirical work. In this paper, we...

Should monetary policy react to stock prices? The answer depends on whether stock prices are good predictors of future economic activity. Using long annual time-series data for the G-7 countries, data going back over 150 years for some countries, we find that stock prices do not systematically...

Traditionally the choice of exchange rate regime has been seen as a second-best policy choice, which can be directed toward mitigating the distortionary effects of price or information rigidities. In this paradigm the optimal degree of exchange rate flexibility is found to depend of the source...

Most of the literature on two-tier exchange markets is built around models in which domestic policy can exert a powerful influence on the spread between the current account exchange rate and the capital account exchange rate. We show that if optimizing agents are risk neutral, domestic policy...

After the speculative attacks on government-controlled exchange rates in Europe and in Mexico, economists began to develop models of currency crises with multiple solutions. In these models, a currency crisis occurs when the economy jumps suddenly from one solution to another. This paper...

Currency crises are difficult to predict. It could be that we are choosing the wrong variables or using the wrong models or adopting measurement techniques not up to the task. We set up a Monte Carlo experiment designed to evaluate the measurement techniques. In our study, the methods are given...