This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate...

This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments...

We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies - the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of...

We develop a methodology that intuitively characterizes the choices countries have made with respect to the trilemma during the post Bretton-Woods period. The paper first outlines the new metrics for measuring the degree of exchange rate flexibility, monetary independence, and capital account...

We use a tractable model to show that emerging markets can protect themselves from the global financial cycle by expanding (rather than restricting) capital flows. This involves accumulating reserves when global liquidity is high to buy back domestic assets at a discount when global financial...

The purpose of this study is to identify conditions under which renewed international. lending will benefit both the developed and the developing countries. Our analysis will evaluate how the presence of terms of trade adjust-rent and distorted credit markets affect the conditions for the...

This paper revisits the Home Bias Puzzle -- the relatively low interna- tional diversification of portfolios. We suggest that part of the diversifi- cation puzzle may be due to reliance on the conventional CAPM model as the benchmark predicting patterns of diversification. We compare the asset...

This paper shows that volatility induces adverse first order welfare effects in countries excluded from the global capital market. This result is illustrated in a model characterized by gains from a greater division of activities, where shocks are persistent. We show that non-linearities...

This paper highlights economic factors determining the choice of technology andopenness in an intertemporal context in the presence of Institutional constraints Inthe labor market. It considers the case in which a more aggressive - developmentstrategy involves an investment in a modern...

This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility...