This paper introduces an imported input into a model of art open economy with developed financial markets, a flexible exchange rate, and some degree of market power on the export side. The model is designed to investigate the impact of an increase in imported input prices on the exchange rate,...

We use a simple model of international lending to show that an emerging market borrower who might default can be shut out of international capital markets without warning. A modest haircut on obligations, for example, can shut down lending

Traditionally the choice of exchange rate regime has been seen as a second-best policy choice, which can be directed toward mitigating the distortionary effects of price or information rigidities. In this paradigm the optimal degree of exchange rate flexibility is found to depend of the source...