Most Western economists and policy makers agree that the Yuan is significantly undervalued and push the Chinese government for a large nominal revaluation of the Yuan. This paper, while surveying recent research on Chinese exchange rate policy, gives some new insights into this issue. Notably,...

For three years after developing countries open their stock markets to inflows of foreign capital, the average annual growth rate of the real wage in the manufacturing sector increases by a factor of seven. No such increase occurs in a control group of developing countries that do not...

The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, the...

The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences—in particular, the EA slump has been markedly more...

This paper aims to highlight key limitations of “The Economist” magazine's Big Mac Index (BMI). The Economist markets the BMI as a tool to determine valuation of currencies. This paper shows that the BMI is a misleading measure of currency valuation for economies whose markets are...

Accommodative monetary policy during the financial crisis was instrumental in preventing a deeper recession. Views differ, however, on how long such measures should be kept in place. At the heart of this debate is the notion that a protracted period of policy accommodation could create...

Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of 'financial repression.' Financial repression includes directed lending to government by captive...

As austerity policies are unpopular with voters and high levels of debt are a drag on growth a number of economists, most famously C. Reinhart and K. Rogoff, suggest that governments might have to consider financial repression as way out of the debt trap. We maintain that an exit from financial...

This paper examines the absorption of government spending shocks in the presence of formal and informal production. Calibrating a two-sector open economy model that is consistent with data from India for the period 1990-2017, we show that increases in both government consumption and investment...

It is well known fact that all good things, as also bad things, come to an end and business cycles pass through good and bad economic times. Economically 2010 was a year of transition from economic recession to recovery. Economies were improving in some countries and industries were showing...