If permanent output is uncertain, tax smoothing can be perilous: both debt levels and tax rates are difficult to stabilize and may drift upwards. One practical remedy would be to target the debt. However, our simulations confirm that such a policy would require undesirably volatile fiscal...

Ex-post deviations from uncovered interest parity (UIP) realized differences between dollar returns on identical assets of different currencies equal the real interest differential plus real exchange rate growth. Among industrialized countries, UIP deviations are largely explained by...

Fiscal rules - legal restrictions on government borrowing, spending, or debt accumulation (like the Gramm-Rudman-Hollings Act in the United States) - have recently been adopted or considered in several countries, both industrial and developing. Previous literature stresses that such laws...

Exchange market pressure (EMP), the sum of exchange rate depreciation and reserve outflows (scaled by base money), summarizes the flow excess supply of money in a managed exchange rate regime. Examining Brazil, Chile, Mexico, Indonesia, Korea, and Thailand, this paper finds that monetary policy...

This paper extends my previous work by examining the relationship between monetary policy and exchange market pressure (EMP) in 32 emerging market countries. EMP is a gauge of the severity of crises, and part of this paper specifically analyzes crisis periods. Two variables gauge the stance of...

This paper critically reviews recent work regarding the sustainability of public debt. It argues that Debt Sustainability Analyses (DSAs) should be more than mere mechanical simulation exercises. Instead, a DSA should be linked to some objective regarding the distribution of fiscal burdens and...

Under a monetary dominant (MD) regime, the primary surplus adjusts to limit debt growth, permitting monetary policy to be conducted independently of fiscal financing requirements. In Brazil, some evidence favors an MD regime for 1995-97, but not for the decade of the 1990s as a whole. While...

We characterize a country's exchange rate regime by how its central bank channels a capital account shock across three variables: exchange depreciation, interest rates, and international reserve flows. Structural vector autoregression estimates for Brazil, Mexico, and Turkey reveal such...

The literature on optimal fiscal policy finds that highly volatile real returns on government debt, for example through surprise inflation, have very low costs. However, policymakers are almost always very apprehensive of this option. The paper discusses evidence concerning features of...

The literature on optimal fiscal policy finds that highly volatile real returns on government debt, for example through surprise inflation, have very low costs. However, policymakers are almost always very apprehensive of this option. The paper discusses evidence concerning features of...