We propose a new explanation for the forward-premium and the delayed-overshooting puzzles. Both puzzles arise from a systematic under-reaction of short-term interest rate forecasts to current innovations. Accordingly, the forward premium is always a biased predictor of future depreciation; the...

Interest rate expectations are essential for exchange rate determination. Using a unique Survey data set on interest rate forecasts from 1986 to 1995 for G7 countries, we find that interest rate shocks were significantly more persistent in sample than expected by the market. This is consistent...

We propose a new explanation for the forward-premium and the delayed-overshooting puzzles. Both puzzles arise from a systematic under-reaction of short-term interest rate forecasts to current innovations. Accordingly, the forward premium is always a biased predictor of future depreciation; the...

No abstract.

Is liberalization in developing countries good for growth even if it leads to crises? The answer is a clear yes. But then, how can we explain the less-than-stellar growth performance of Mexico, a prominent liberalizer and member of NAFTA? In this paper we address these questions by analyzing the...

We model capital flight as the outcome of a non-cooperative differential game between workers (who control the wage share) and capitalists (who control investment at home and abroad). There are three equilibria for such a game. Along the interior equilibrium, the domestic economy becomes...

In this paper, we derive three lessons from Mexico’s experience. First, deep reforms like trade liberalization are not likely to happen by government decree. Instead, they usually come about when the unanimous blocking of reform by powerful elites breaks down. In the case of Mexico, this...

Introducción. A menudo, el capital parece fluir de los países pobres a los ricos, en aparente, contradicción con el modelo neoclásico de crecimiento con dos factores. Dado que los países pobres tienen una menor razón capital-mano de obra, y por tanto un mayor producto marginal de capital,...

We present a model of endogenous institutional change that rationalizes reforms that have taken place in the context of economic crisis and drastic political change. Most of these reforms have been initiated by powerholders, even though they have ended worse-off relative to the status quo. The...