Standard theory of small open economies predicts a smooth path for consumption and investment over time, and procyclical current account balances and employment. This contrasts with the data for emerging countries, where consumption, investment and employment are highly procyclical and volatile,...

We document the recent phenomenon of "uphill" flows of capital from nonindustrial to industrial countries and analyze whether this pattern of capital flows has hurt growth in nonindustrial economies that export capital. Surprisingly, we find that there is a positive correlation between current...

Even well managed emerging market economies are exposed to significant external risk, the bulk of which is financial. At a moment's notice, these economies may be required to reverse the capital inflows that have supported the preceding boom. While capital flows crises are sudden nonlinear...

Globalization and strengthening of integration processes have, among other things, also influenced some solutions relating to monetary sovereignty of particular countries. A great number of transition countries as well as some other underdeveloped countries are facing both inefficiency in their...

This paper presents a flexible-price small open economy model with a “peso problem” in productivity states. Agents rationally adjust their beliefs about future productivity growth after the arrival of news. A downward revision of expectations triggers a Sudden Stop, together with large...

This paper makes a theoretical and an empirical contribution to the debate on what caused the "global imbalances". On the empirical side, I provide different types of evidence to support that housing demand shocks (shocks to the aggregate marginal rate of substitution between housing and...

We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems,...

China's high corporate savings rate is commonly claimed to be a key driver for the country's large current account surplus. The mainstream explanation for high corporate savings is a combination of windfall profits in state-owned firms, especially in resource sectors, and mis-governance of...

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,...

This study shows that the Feldstein-Horioka puzzle resembles a spurious ratio correlation due to a common deflator (Pearson 1896/7). Empirically, the Feldstein-Horioka specification and its counterpart with an arbitrary deflator – final domestic demand – give similar results. Monte Carlo...