Policy Papers:
Enseñanzas de la Globalización Financiera. Lo Nuevo y lo Falaz. Cuadernos de Información Económica 200, Fundación de las Cajas de Ahorro, Madrid, Spain. October 2007.
The resolution of global imbalances: Soft landing in the North, sudden stop in emerging markets?
ABSTRACT: The paper shows that the increase in the US current account deficit since 1997 was financed by Emerging Market economies, EMs. Since 2001 a large share of the funding was carried out by the official sector, taking mostly the form of accumulation of international reserves. The paper argues that (1) if official funding is stopped or reversed, the private sector in EMs is likely to provide offsetting funds, preventing the US to go through a Sudden Stop episode; and (2) in the unlikely event that global saving collapses, the brunt of the adjustment is likely to be borne by EMs, e.g., through Sudden Stops, and flight to quality likely to ensure the US a smooth transition, i.e., a soft landing.
Capital Flow Reversals, the Exchange Rate Debate, and Dollarization (with C. Reinhart), September 1999
When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options (with C. Reinhart), June 29, 1999
ABSTRACT:In this paper we present evidence that capital account reversals have become more severe for emerging markets. Because policy options are limited in the midst of a capital market crisis and because so many countries have already had crises recently, we focus on some of the policies that could reduce the incidence of crises in the first place, or at least make the sudden stop problem less severe. In this regard, we consider the relative merits of capital controls and dollarization. We conclude that, while the evidence suggests that capital controls appear to influence the composition of flows skewing flows away from short maturities, such policies are not likely to be a long-run solution to the recurring problem of sudden capital flow reversals. Yet, because fear of floating, many emerging markets are likely to turn to increased reliance on controls. Dollarization would appear to have the edge as a more market-oriented option to ameliorate, if not eliminate, the sudden stop problem.
Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops, July 20, 1998.
Empirical Puzzles of Chilean Stabilization Policy, March 5, 1998.
ABSTRACT: This paper reviews Chilean stabilization policy during the 1990s and argues that, while the merits of Chilean policy should be praised, there are four puzzles in conventional interpretations of the Chilean experience worth studying. First, the policy of targeting indexed interest rates does not coincide with a policy of targeting real interest rates. Second, there is no systematic link between the decline in inflation and the upward adjustments in indexed interest rates. Third, changes in the exchange rate and in the performance of the external sector help explain the decline in inflation. Fourth, the strong cyclical growth of the real economy was influenced in part by the large and persistent increase in the world price of Copper. We provide statistical evidence favoring these arguments using recursively-identified vector-autoregression models, and sketch a model of staggered pricing under indexation that sheds some light on the Chilean case.
Notas sobre la Política Macroeconómica en El Salvador, December 28, 1997.
Monetary and Exchange Rate Policy For Mexico, June 8, 1997.