Essays in international economics
This thesis consists of three essays in International Economics, with special emphasis on exchange rate management and currency crises. In the first essay, I use a small open-economy, representative-agent model to look at the relationship between the sterilization of capital inflows and balance of payments crises. Sterilized intervention has been the most common response to capital inflows at the beginning of the 90?s. Sterilization increases the domestic interest rate, exacerbating the inflows and widening the fiscal deficit. Exploiting these facts, this is the first paper to link the sterilization efforts with BOPC in a general equilibrium model. I analyze two situations that result in increased capital inflows. First is the case of an economy with a fiscal deficit that leads to a BOPC. I show that if the government tries to sterilize, the current account deficit increases and the BOPC is brought forward. Second is the case of an economy facing a temporary decrease in the international interest rate. I show that an attempt to sterilize capital inflows leads the economy to a BOPC. In the second essay, joint with Giancarlo Gasha, I consider a new approach to the selection of variables in an empirical model of currency crisis prediction, and test it using data for five Latin-American countries. I propose to evaluate a country like a corporation, assessing ratios of solvency, liquidity, and competitiveness. My claim is that this insight of treating a country as a corporation (or devaluation as default) allows the researcher to make a better and more parsimonious transition from theoretical models to the empirical tests. In the third essay, joint with Alberto Ades and Rumi Masih, I provide new results on the problem of the recent fear of floating among EMC. We find partial evidence that recently there is less fear of floating among EMC, and that there is only mixed evidence that EMC that have recently engaged inflation targeting (IT) have increased the flexibility of their exchange rate. Second, I find that in many cases the exchange rate intervention by countries that engaged in IT has not been excessive.
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|Authors:||Buscaglia, Marcos Andres|
|Type of publication:||Other|
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