Since the fall of 2008, option smiles have been clearly asymmetric: out-of-the-money currency options point to large expected exchange rate depreciations (appreciations) for high (low) interest rate currencies, suggesting that disaster risk is priced in currency markets. To study the price of...

In this paper we argue that the persistent global imbalances, the subprime crisis, and the volatile oil and asset prices that followed it, are tightly interconnected. They all stem from a global environment where sound and liquid financial assets are in scarce supply

Three of the most important recent facts in global macroeconomics -- the sustained rise in the US current account deficit, the stubborn decline in long run real rates, and the rise in the share of US assets in global portfolio -- appear as anomalies from the perspective of conventional wisdom...

We propose a simple model of the international monetary system. We study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios: a Hegemon vs. a multipolar world; abundant vs. scarce reserve assets; a gold exchange standard vs. a floating...

This paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. In this context, we establish five main results: (i) Economies experiencing liquidity traps pull others into a similar...

In this paper, we use cross-industry, cross-country panel data to test whether industry growth is positively affected by the interaction between the reactivity of real short term interest rates to the business cycle and industry-level measures of financial constraints. Financial constraints are...