We investigate the role of financial dollarization in the determination of real interest rates in emerging economies. In a simple analytical model, we show that a strategy of ""dedollarizing"" the economy, if it fails to address fundamental macroeconomic risks, leads to higher domestic real...

This chapter outlines policies to help solve the debt overhang and bring about recovery in both groups of countries. The current financial turmoil is confronting emerging market economies with two shocks: a 'sudden stop' of capital inflows resulting from the global deleveraging process, and a...

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging market economies since 1973. We also construct an algorithm to identify booms and busts in stock...

In a rational-expectations framework, we model depositors'' confidence as a function of the probability of future bank bailouts. We analyze the effect of alternative bank bailout policies on depositors'' confidence in an emerging market setting, where liquidity shortages of banks are revealed...