We examine the role played by government investment in infrastructure in determining the optimal quantity of public debt in a heterogeneous agent economy with incomplete insurance markets. Calibrating our model to the key aggregate and distributional moments of the U.S. economy for the period...

It is widely documented that currency substitution (using foreign money in transactions) increases in periods of high inflation but does not decline once inflation is reduced. The paper uses survey data from Bulgaria, which experienced this phenomenon, to investigate the origins of this ratchet...

We study the consequences of forming a monetary union among a group of countries where the central banks lack independence and are pressured frequently to accommodate government objectives. This is a common situation in the developing countries. As it is common in the literature, we show that...

We investigate a new data set on the maturity of bank credit to the private sector in 74 countries. We show that credit maturity is longer in countries with strong institutions, low inflation, large financial markets, and where banks share information about borrowers. Furthermore, we extend the...

After disinflation has been achieved, agents who form more sophisticated forecasts have lower confidence in the sustainability of a peg compared to less sophisticated agents. Furthermore, sustained financial stability leads to a declining proportion of sophisticated agents. Thus, the credibility...