The goal of this paper is to propose a simple paradigm for understanding rent seeking and corruption in the growth context. We develop an endogenous growth model where entrepreneurs, as intermediate-good producers, may engage in rent-seeking activities. The latter are defined by the following...

We shed light on the function, properties and optimal size of austerity using the standard sovereign model augmented to include incomplete information about credit risk. Austerity is defined as the shortfall of consumption from the level desired by a country and supported by its repayment...

We develop a sovereign debt model with official and private creditors where default risk depends on both the level and the composition of liabilities. Higher exposure to official lenders improves incentives to repay but carries extra costs, such as reduced ex-post flexibility. The model implies...

We investigate how the relative contribution of external factors to stock price movements varies with the degree of financial development. We find that financial development makes stock markets more susceptible to external influences (both financial and macroeconomic). Interestingly, this effect...

The theory of optimum currency areas was conceived and developed in three highly influential papers, written by Mundell (1961), McKinnon (1963) and Kenen (1969). Those authors identified characteristics that potential members of a monetary union should ideally possess in order to make it...

The industrialization of labour is the main engine of growth during the early stages of economic development. In less developed countries, equipment investment has played a less important role than non-equipment investment; and it has only proved growth enhancing when it either encountered a...

We compare monetary union to flexible exchange rates in an asymmetric, three-country model with active monetary policy. Unlike Friedman's (1953) case for flexible rates, we find that countries with high degree of nominal wage rigidity are better off in a monetary union. Their benefits increase...

Economic decisions such as occupational and entrepreneurial choices may violate true comparative advantage when economic agents are uncertain about which activity best matches their talents. If relative performance varies over the business cycle (for instance, if downturns affect...

Monetary arrangements in Europe vacillated wildly over the last decade, and they may be expected to continue to do so over the next. The literature on this chaotic process has focused on issues of credibility. Here, we focus instead on the longer-run implications of Europe's choice of monetary...

We examine stock returns in a cross section of emerging and mature markets (47countries) between 1980-99. The level of financial development turns out to be an important determinant of the performance of stock returns. In general, a deeper and higher quality banking system decreases the...