The increase in both public and private indebtedness has been one of the main macroeconomic developments in recent years. This trend has been accompanied by large current account deficits, especially in smaller countries, such as Greece and Portugal. One possible explanation for this behaviour...

This paper analyses the architecture of the International Monetary System (IMS) and the role of reserve currencies in it. We begin by describing the evolution of the IMS from the Gold Standard to the Bretton Woods system and the European integration process that led to the creation of the euro....

Evidence of instability of the wealth effect in the USA is presented through the estimation of a Markov switching model of the long-run aggregate consumption function. The dating of the regimes appears to bear relation to movements in asset prices. A model-based explanation of the findings is...

We evaluate the macroeconomic performance of different monetary policy rules when there are bubbles in the exchange rate. We do this in the context of a non-linear rational expectations model. The exchange rate is allowed to deviate from its fundamental value and the persistence of the deviation...

The rise of nontradable sectors has been mentioned as one of the causes of low economic growth and external imbalances in the Portuguese economy. In this paper we describe the main trends and jumps in the evolution of nontradable sectors, since the mid-1950s, using four different databases to...

We analyse the monetary policy implications of boom-bust cycles in asset prices using a Markov-switching rational expectations model. In our simulations, when a bubble bursts, the Taylor rule fails to achieve a soft landing, contrary to the optimal policy.

This paper argues that nonlinear adjustment may provide a better explanation of °uctuations in the consumption-wealth ratio. The nonlinearity is captured by a Markov-switching vector error-correction model that allows the dynamics of the relationship to di®er across regimes. Estimation of the...

We analyse the effect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modelled by adding Markov-switching shocks to a DSGE model with capital accumulation. In our analysis we consider both Taylor-type rules and...

Evidence of instability of the wealth effect in the USA is presented through the estimation of a Markov switching model of the long-run aggregate consumption function. The dating of the regimes appears to bear relation to movements in asset prices. A model-based explanation of the findings is...

Financial stability, with an emphasis on the relevance of asset prices stability to the stability of the overall economy, has become the sub ject of wide discussion among monetary authorities. Closely related to these issues are the concerns of central bankers with a bubble economy and its...