Most work showing the yield curve predicts future economic growth relies on post WWII data. We demonstrate that the yield curve has predictive content for most of the post Civil War period. This predictive ability, however, is closely related to the credibility of the monetary regime in place,...

This paper revisits the Chilean experience with dollarization, indexation and nominalization in the 1958-2003 period. The purpose is to understand how Chile generally avoided dollarization and actually dedollarized in the 80s in order to draw some lessons for other countries. We find that many...

Financial dollarization has been placed at the forefront of the policy debate in many developing economies, for reasons that include its influence on inflation performance and, most prominently, the currency imbalance and associated financial fragility that it introduces for the economy as a...

Latin American economies are exposed to ubstantial external vulnerability. Domestic imbalances and terms of trade shocks are often exacerbated by sudden financial distress. In this paper we explore ways of overcoming external vulnerability drawing lessons from a detailed comparison of the...

Under a Bayesian framework of model uncertainty, closed economy models of monetary policy typically suggest that policy responses should be attenuated. Conversely, under a Knightian view of uncertainty, where the policymaker cannot specify probabilities across alternative models, intensifying...

This paper proposes a simple framework for analyzing a continuum of monetary policy rules characterized by differing degrees of credibility, in which commitment and discretion become special cases of what we call quasi commitment. The monetary policy authority is assumed to formulate optimal...

Various approaches to optimal monetary policy have been used to select time-invariant policy rules, including the timeless perspective approach by Woodford (1999) and the unconditional expected utility criterion of McCallum (2000). In this paper, we argue instead that policy rules should be...

To date the cointegrating properties and the regime-switching behavior of the term structure are two separate strands of the literature. This paper integrates these lines of research and introduces regime shifts into a cointegrated VAR model. We argue that the short-run dynamics of the...

The literature gives evidence that term spreads help predict output growth, inflation, and interest rates. This paper integrates and explains these predictability results by using an affine term structure model with observable macroeconomic factors. The results suggest that consumers are willing...

This paper investigates the properties of optimal monetary and fiscal policy in a two sector small open economy. If the government can optimally select all possible distorting tax rates, then it can implement Pareto efficient outcomes and the Friedman Rule is found to be a necessary condition...