Financial turmoil is becoming a fact of life in Latin America. The 1990s have been characterized by enormous volatility …

We introduce external risks, in the form of shocks to the level and volatility of world interest rates, into a small … interest rates and a persistent rise in their volatility. We solve for the optimal policy and argue that the size of a tax on …. We show quantitatively that these taxes respond to both the level and volatility of interest rates even though optimal …