The problem is to evaluate the likelihood that a country will face a currency or balance of payments crisis over a given horizon. When is it rational for market participants to expect a depreciation of the currency? On the basis of considerable empirical studies we know that in both banking and...

We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a...

We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a...

Empirical econometric evidence shows that Mexico's simulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float than when they fixed it, and much faster than in other developing countries that...

This paper surveys the main theoretical approaches for analyzing movements in the current account of the balance of payments, from the Mundell-Fleming paradigm to modern intertemporal approaches. It discusses the main implications of these analyses for policymaking, highlighting that modern...

Under the assumption that the balance of payments must satisfy the expected intertemporal balance, this paper seeks to establish a pre-condition for a crisis of the Exchange Rate Mechanism (ERM). Proposing that non-stationarity of the growth rate of assets is evidence of a violation of expected...

This paper studies a dynamic-optimizing model of a small open economy with sticky nominal prices and wages. The model exhibits exchange rate overshooting in response to money supply shocks. The predicted variability of nominal and real exchange rates is roughly consistent with that of G7...

The canonical predictions of intertemporal open-economy macro models are tested by a structural VAR analysis of Group of Seven countries. The analysis is distinguished from the previous literature in that it adopts minimal assumptions for identification. Consistent with a large set of...