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...

We present a theory in which the key driver of short-term debt issued by the financial sector is the portfoliodemandforsafeandliquidassetsbythenon-financial sector. Households ’ demand for safe andliquidassetsdrivesapremiumonsuchassetsthatthefinancial sector exploits by owning risky and...

<DIV>The recent financial crisis and the difficulty of using mainstream macroeconomic models to accurately monitor and assess systemic risk have stimulated new analyses of how we measure economic activity and the development of more sophisticated models in which the financial sector plays a greater...</div>