Emerging market economies, which have much of their growth ahead of them, run persistent current account deficits in order to smooth consumption intertemporally. The counterpart of these deficits is their dependence on capital inflows, which can suddenly stop. In this paper we develop and...

One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In...

Microeconomic flexibility, by facilitating the process of creative destruction, is at the core of economic growth in modern market economies. The main reason why this process is not infinitely fast is the presence of adjustment costs, some of them technological, others institutional. Chief among...