In this paper we analyse the macroeconomic effects of peso problems by simulating numerically a small-scale rational expectations macromodel. The model is a conventional IS-LM-AS model of an open economy under floating exchange rates. The peso problem has been incorporated in the model by...

This paper presents a flexible-price small open economy model with a “peso problem” in productivity states. Agents rationally adjust their beliefs about future productivity growth after the arrival of news. A downward revision of expectations triggers a Sudden Stop, together with large...

We use the Markov-switching model based on Hamilton (1990) among others. The non-explicit intervention of the Central Reserve Bank changes the expectations of economic agents. This change in expectations clearly shows that the public is aware of non-explicit interventions in a dollarized economy...

An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of...

This paper studies the "overpriced puts puzzle" — the finding that historical prices of the S&P 500 put options have been too high and incompatible with the canonical asset-pricing models. To investigate whether put returns could be rationalized by another, possibly non-standard equilibrium...

An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of...

The goal of this paper is to identify the main determinants of the risk premium in some European currency markets just before the EMU. To do this the authors propose an exchange rate model and derive a formula for the forward premium. This formula includes money and production variables and is...