This dissertation addresses two aspects of firm behavior in emerging markets. Chapters 1 and 3 consider the decision of firms to borrow in domestic or foreign currency and the implications of this decision on fixed capital and inventory investment. Chapter 2 explores the effects of institutions,...

"While the traditional view of financial innovation emphasizes the risk sharing role of new financial assets, belief disagreements about these assets naturally lead to speculation, which represents a powerful economic force in the opposite direction. This paper investigates the effect of...

I review the literature on financial speculation driven by belief disagreements from a macro- economics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate over- valuation and...

The net effect of financial innovation on portfolio risks depends on the quantitative strength of its effects on the uninsurable and the speculative variances. I consider a calibration of the model for new assets linked to national incomes of G7 countries, which were recommended by Athanasoulis...

We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output...

We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their...