This paper examines the choice of exchange rate regime in EU candidate countries during the process of accession to the Europe an Monetary Union (EMU). In the presence of real exchange rate appreciation due to the Balassa-Samuelson effect, candidate countries face a trade-off between trend...

We quantify the cross-sectional and time-series behavior of the wedge between the cost of external and internal finance by estimating the structural parameters of a canonical debt-contracting model with informational frictions. For this purpose, we construct a new dataset that includes balance...

We develop a small open economy macroeconomic model where financial conditions influence aggregate behavior. We use this model to explore the connection between the exchange rate regime and financial distress. Fixed exchange rates are shown to exacerbate financial crises. Quantitative exercises...

We develop a general equilibrium model of an emerging market economy where productivity growth differentials between tradable and non-tradable sectors result in an equilibrium appreciation of the real exchange rate-the so-called Balassa-Samuelson effect. The paper explores the dynamic properties...

This paper incorporates a financial accelerator mechanism in a small open economy macro model with money and nominal price rigidities. Our goal is to explore the connection between financial distress that feeds into the real economy and the exchange rate regime. Our principle finding is that...

We develop a small open economy macroeconomic model where financial conditions influence aggregate behavior. We use this model to explore the connection between the exchange rate regime and financial distress. We show that fixed exchange rates exacerbate financial crises by tieing the hands of...

We investigate the extent to which firm-level data are consistent with the microeconomic foundations of the benchmark financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). To that purpose, we construct a new dataset that directly links firm-specific balance sheet variables to...

The empirical difficulties associated with estimating the effects of changes in interest rates and corporate tax policy on business fixed investment are often blamed on a lack of identification. In this paper, we study the effect of variation in interest rates on investment spending, employing a...