I introduce endogenous capital accumulation into an otherwise standard quantitative sovereign default model in the tradition of Eaton and Gersovitz (1981), and find that conditional on a level of debt, default incentives are U shaped in the capital stock: the economy with too small or too large...

We consider how fear of model misspecification on the part of the planner and/or the households affects welfare gains from optimal macroprudential taxes in an economy with occasionally binding collateral constraints as in Bianchi (2011). On the one hand, there exist welfare gains from...

Asian economies are increasingly integrated to the global economy through trade and financial linkages, exposing them to the international financial cycle. This paper explores how external shocks are transmitted to Asian economies and whether the use of policies, such as the monetary policy...

How important are liability dollarization in the transmission of commodity shocks on business cycles? To address this question, we developed a small open economy DSGE model with a banking sector and financial friction. The banks collect funds in the international capital markets in the form of...

The complexity of the Cyprus crisis makes answering the question of the title difficult, while the policy implications make the question important. However, the answer to this question unavoidably points the finger to those responsible, and as a result the quest for an answer is clouted by...

The Cyprus debt crisis provides some unique lessons. By the time an assistance program was agreed with the Troika of international lenders, the problem had become so complex that a depositor bail-in was implemented to safeguard financial stability. The bail-in was an ad hoc solution applied for...

In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabilities. This paper extends the DSGE model of Gertler and Karadi (2011) to incorporate these key features and estimates a panel vector...

This paper examines empirically the role of macroprudential policy in addressing the effects of external shocks on financial stability. In a sample of 62 economies over the period of 2000: Q1-2016: Q4, our dynamic panel regressions show that an appreciation of the local exchange rate is...

In this paper we characterize empirically the comovements of macro variables typically observed in middle income countries, as well as the "boom-bust cycle" that has been observed during the last two decades. We find that many countries that have liberalized their financial markets, have...

Certain growth-promoting policies can have negative side-effects by increasing the vulnerability of economies to financial crises. Typical examples are greater openness to financial flows or more liberalised financial markets. This paper investigates whether the growth benefits of policy reforms...