Episodes of large crises such as the Mexican crisis in 1994-1995, the East Asian crisis in 1997-1998, and the Argentine crisis in 2001-2002 are associated with large adjustments in trade flows. The dollar value of imports in Argentina, for instance, dropped by 80 percent between 2000 and 2002. A...

Recent evidence on the importance of cross-border equity flows calls for a rethinking of the standard theory of external adjustment. We introduce equity holdings and portfolio choice into an otherwise conventional open-economy dynamic equilibrium model. Our model is simple and it admits an exact...