The paper analyzes the choice of an exchange rate regime for a small open economy indebted in foreign-currency, incorporating the financial accelerator. Conventional wisdom suggests that floating regimes should insulate the economy from real shocks. I show that this result depends on the degree...

An investment model with informational frictions and uncertainty is developed to capture the asymmetric dynamics of business cycles. When hit by a negative shock, the economy responds differently, in both size and recovery length, than when hit by a positive shock. In the model, the role for...