Increasing financial integration challenges the optimality of inward-looking strategies for optimal monetary policy. Those issues are analyzed in an open economy where foreign net lending, and the current account, are determined by a collateral constraint. Durables represent collateral. The...

In this article, we focus on current account dynamics in large open economies characterized by debt-constrained heterogeneous agents and endogenous monetary policies. We incorporate three key features that have bulked large in the New Open Macroeconomics literature : i) home bias in trade, ii)...

How should monetary policy be optimally designed in an environment with high degrees of financial globalization? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement....