We derive a precautionary demand for international reserves in the presence of sovereign risk and show that political-economy considerations modify the optimal level of reserve holdings. A greater chance of opportunistic behaviour by future policy makers and political corruption reduce the...

The authors uncover a significant negative correlation between various volatility measures and private investment in developing countries, even when adding the standard control variables. No such correlation is uncovered when the investment measure is the sum of private and public investment...

This paper shows that uncertainty about an emerging market's international reserves can affect the willingness of foreign investors to supply international credits. We illustrate the relevance of this concern for South Korea. Uncertainty has asymmetric effects. When the expected reserve position...

Projections indicate the US Federal debt held by the public may exceed 70–100% of GDP within 10years. In many respects, the temptation to inflate away some of this debt burden is similar to that at the end of World War II. In 1946, the debt ratio was 108.6%. Inflation reduced this ratio by...

As a share of GDP, the U.S. Federal debt held by the public exceeds 50 percent in FY2009, the highest debt ratio since 1955. Projections indicate the debt ratio may be in the 70- 100 percent range within ten years. In many respects, the temptation to inflate away some of this debt burden is...