The paper emphasizes the role of institutions and incentives in the presence of externalities. An economy with multiple public decision makers is likely to experience "overspending," "undertaxing," "overborrowing," and "overinflation" unless effective institutions exist for overcoming...

The purpose of this paper is to study why decentralized economies often fail to achieve national objective in the presence of externalities. The paper employs a two-period, open economy framework in which the central government allocates its tax revenues among a larger number of individual...

We use the concepts of deliberative democracy from political science and cheap talk from economics to develop a better understanding of how public discussion can contribute to building and demonstrating ownership of IMF programs and hence to program success. We argue that ownership is more...

This paper provides indirect tests of the hypothesis that exchange rate movements may be largely coterminus with changes in preferences for holding claims on different countries. It is argued that changes in country preferences will be reflected systematically in the price of gold and, hence,...

The paper considers the merits of rules and discretion for monetary policy when the structure of the macroeconomic model and the probability distributions of disturbances are not well defined. It is argued that when it is costly to delay policy reactions to seldom-experienced shocks until formal...

In this paper we explore the possibilities arising under a policy in which a partially state contingent money-supply rule is mixed with discretion. In addition to demonstrating that such mixed strategies can dominate both complete discretion and rigid adherence to the partially state contingent...

The paper tests the Balassa-Samuelson hypothesis (rapid economic growth is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and nontradable sectors) using data of the APEC economies. Japan, Korea, Taiwan and, to a lesser extent, Hong...

We empirically assess the relative importance of various economic fundamentals in accounting for the sovereign credit default swap (CDS) spreads of emerging markets during 2004-2012, which encompasses the global financial crisis of 2008-2009. Inflation, state fragility, external debt, and...

The global crisis of 2008 raises many questions regarding the long‐term response to crises. We know that households that lost access to credit, for example, were forced to adjust and increase saving. But, will households keep on saving more than they would have done otherwise had the global...

This paper explains why a laissez-faire approach may fail to account for externalities in transforming economies, focusing on externalities associated with supply bottlenecks and adjustment costs. Bottlenecks tend to arise whenever input requirements are stochastic and the opportunity cost of...