What is the appropriate inflation target for a currency union, when conducting monetary policy: core inflation or headline inflation? We answer the question in a two-country New Keynesian model with an energy sector. We derive the welfare loss function and find that optimal monetary policy...

The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (US, EA, rest of world) DSGE model with trade...

International financial integration has faced major changes and challenges since the 2008-09 global financial crisis. The crisis triggered a persistent contraction in international capital flows. Regulatory reforms and new macro-prudential frameworks have been reshaping international finance...

This paper discusses that a lot of the debate on selecting an exchange rate regime misses the time. It begins explaining the standard theory of choice between exchange rate regimes, and then explores the fragilities in this theory, specifically when this is applied to emerging economies. Next...

Abstract This paper examines the market-wide effects of front-running and information-sharing by dealers in a quantitive microstructure model of Forex trading. Recent investigations by government regulators and court proceedings reveal that there has been widespread sharing of information among...

This paper empirically explores the impact of public debt on economic growth in Sub-Saharan African (SSA) countries over the period 1960 to 2015 by using a system Generalized Methods of Moments (s-GMM). Specifically, this work studies the nonlinear relationship between public debt and economic...

Using a sample of 6,888 non-financial firms from 47 countries, we examine the effect of derivative use on firms’ risk measures and value. We control for endogeneity by matching users and non-users on the basis of their propensity to hedge. We also use a new technique to estimate the effect of...

This paper studies rational bubbles in non-linear dynamic general equilibrium models of the macroeconomy. The term ‘Rational bubble’ refers to multiple equilibria due to the absence of a transversality condition (TVC) for capital. The lack of TVC can be due to an OLG population structure. If...

Inflows of foreign currencies into the developing economies, in particular, have been associated with the Dutch disease phenomenon whereby a surge in such inflows is believed to stimulate real appreciation of the real exchange rate. As a result, there could be deindustrialization impacts on the...

The Eurozone recent crisis has shown how balance of payments problems in less developed European Monetary Union (EMU) member countries can affect EMU trading partners, spreading the crisis to a larger group of countries. This paper introduces a three-country dynamic general equilibrium model to...