This paper studies the impact effect of monetary policy shocks—identified by the reaction of three month market interest rates to policy announcements—on the exchange rate in Australia, Canada, and New Zealand during the 1990s. The main results are that (1) on average, a 100 basis point...

This work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies. The model is applied to stylized data from several South Asian countries. It derives conclusions about policy instruments designed to alleviate the impact of insolvencies. Firms...

Following the 1997-98 financial turmoil, crisis countries in Asia moved toward either floating or fixed exchange rate systems, reinforcing the bipolar view of exchange rate regimes and the ""hollow middle"" hypothesis. But some academics have claimed that the crisis countries'' policies have...

Monetary policy in the euro area is conducted within a multicountry, multicultural, and multilingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central...

This paper studies optimal monetary policy in a two-sector small open economy model under segmented asset markets and sticky prices. We solve the Ramsey problem under full commitment, and characterize the optimal monetary policy in a calibrated version of the model. The findings of the paper are...

This paper examines the role of corruption in the design of monetary policies for developing countries in a framework of fiscal and monetary interaction and obtains several interesting results. First, pegged exchange rates, currency boards, or dollarization, while often prescribed as a solution...

This paper reviews the ""Austrian"" theory of the business cycle first proposed by Friedrich Hayek in the 1920s. His theory claimed that credit creation by monetary authorities would push investment beyond society''s long-term willingness to save, creating a mismatch between supply and demand...

Africa lags behind other regions in attracting foreign direct investment (FDI). In some circumstances, there are obvious explanations for the absence of FDI, such as a high incidence of war. In this paper, we examine the role that monetary and exchange rate policy may have played in explaining...

The paper tests a hypothesis suggested by Taylor (2000) that a low inflationary environment leads to a low exchange rate pass-through to domestic prices. To test this hypothesis, the paper derives a pass-through relation based on new open economy macroeconomic models. A large database that...

This paper explains why the debt reduction motive for countries that are subject to borrowing constraints and a volatile environment is greater than for those with a more stable environment and relatively better access to the financial markets. In particular, it shows that the possibility of...