Currency risk is one of the two components of the total interest rate differential. Hard pegs, such as currency boards, are meant to reduce or even eliminate currency risk, thus reducing domestic interest rates. This paper investigates the patterns and determinants of the currency risk premium...

Capital flows to developing countries are small and mostly take the form of loans rather than direct foreign investment. Kraay, Loayza, and Serven build a simple model of North-South capital flows that highlights the interplay between diminishing returns, production risk, and sovereign risk. The...

Conventional measures of aid are not designed to estimate the overall aid content of financial flows. Furthermore, they typically overstate the grant elements of concessional loans, thus understating relative aid flows to recipients getting mostly grants and from donors giving mostly grants (and...