A model of external crises is developed focusing on the interaction between liquidity creation by financial intermediaries and foreign exchange collapses. The intermediaries' role of transforming maturities is shown to result in larger movements of capital and a higher probability of crises....

This paper examines the recent evolution of monetary policy since the adoption of formal inflation targeting in Brazil. We argue that the new policy framework has been subject to a severe test in its first years of existence, represented by external shocks – oil prices, and increased...

Recent studies have shown that exchange rates in developing countries have limited flexibility. In this paper we review the existing explanations for this stylized fact, using a simple framework of monetary policy in a world where firms face balance sheet effects and the economy has a high...

This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a...

Open economies, particularly emerging markets and commodity-intensive economies, deal with large external shocks. Alternative policy reactions and policy setups may dampen or amplify the consequences of these shocks, affecting the magnitude of the effects. This paper revisits the recent...

The paper models the optimal debt management strategy of the public sector when issuing nominal, pricelevel indexed and foreign denominated debt securities. The model predicts that the variance of inflation, the size of the public debt, the variance of the real exchange rate, and the correlation...

Open economies, particularly emerging markets and commodity-intensive economies, deal with large external shocks. Interestingly enough, policy reactions and policy set-ups may dampen or amplify the consequences of these shocks, affecting the magnitude of the shock. This paper revisits the recent...

This paper provides evidence on the relationship between monetary policy and the exchange rate in the aftermath of currency crises taking into account the role of a fragile banking system. It analyzes a large set of currency crises that led to real exchange rate undervaluations from a sample of...

The paper studies the relationship between exchange rate depreciations and inflation using a sample of 71 countries in the period 1980-1998. The main determinants of the extent of inflationary pass-through of the depreciations (appreciations) are the cyclical component of output, the extent of...

The paper discusses the advantages and disadvantages of the full dollarization option and offers a few stylized facts and conclusions regarding the effects of full dollarization. On one hand, a full-dollarized economy delivers an impressive inflation performance and may even reduce the impact of...