The right response to a speculative attack on the domestic currency by monetary authorities in a country with liabilities in US dollars has been a matter of hot debate among academics and policy makers especially after the East Asian Crisis. Using a modified version of the currency crisis model...

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 declines in...

We analyse the effect of the uncertainty about the fundamentals on the probability of sudden stops of capital flows from a theoretical and empirical perspective. Our model predicts that the probability of crises increases with the uncertainty, ie. the dispersion of private signals about the true...

This paper analyzes the impact of uncertainty on the spread of stock market crises, both theoretically and empirically. The effect of uncertainty about the fundamentals on investment decisions is an important cause of financial crises propagating across countries. Firstly, a coordination game on...

A two sector small open economy model developed by Corden (1991, 2002) is used to analyse the impact of sudden stops in capital inflows on an internal and external equilibrium and to explore the merits of disposing of the nominal exchange rate as policy tool in rectifying real exchange rate...

This paper argues that foreign direct investment in economies with credit market imperfections may increase their vulnerability to capital flow shocks. Due to better access to financial markets foreign firms can use other wage contracts than domestic ones. This alters the domestic wage...

Several European countries face challenges reminiscent of those faced by the emerging economies of Latin America. The economic booms in some peripheral Euro-zone countries financed by large capital inflows; the credit and asset price booms and then the busts including Sudden Stops in capital...

The objective of this is study is to assert the role of domestic financial system as mitigating of sudden stops episodes and driver of capital flows in a group of 14 emerging economies in the period of 1999-2013, especially in face of unfavorable external environment such as high international...

During the Euro Area crisis huge changes in international capital flows occurred associated with a high level of economic uncertainty. While it is evident that both factors are able to trigger or amplify economic shocks posing a threat for economic activity it is a natural question whether they...

This paper shows estimates of the optimal level of foreign reserves for Brazil between the first quarter of 2004 and the third trimester of 2012, by applying the new Jeanne e Rancière (2011) framework, using different scenarios. The estimates of the optimal holdings of this asset are calculated...