One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In...

Using a dynamic general equilibrium model with many goods and many factors, this paper studies the adjustment process in a transition from one equilibrium to another. Applying a search process, an adjustment technique is developed to link the product and factor markets. Then an optimal control...

We embed downward wage rigidity into a rational bubble model. We analytically characterize how the collapse of bubbles can interact with wage rigidity to generate deep and protracted recessions with involuntary unemployment, such as those in Japan or Spain

This paper analyses an open economy Ramsey model with an endogenous labour supply without capital. The technology defines an optimal firm size. Changes to the number of firms is subject to adjustment costs, so that the entry dynamics is determined endogenously. We find that there is a short run...

Understanding private saving behavior of the citizenry is crucial for informed policy decisions in an economy. The reason is not far-fetched; economies gain sustained growth from investment through a positive saving culture. However, much of the available literature is on aggregate savings rather...

We explore income and consumption smoothing patterns among European Community (EC) countries and among OECD countries during the period 1966--90. We find that, for OECD as well as for EC countries, about 40 percent of shocks to GDP are smoothed at the one year frequency, with about half the...

We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business in this set-up, we show that,...

This paper analyses an open economy Ramsey model with an endogenous labour supply without capital. The technology defines an optimal firm size. Changes to the number of firms is subject to adjustment costs, so that the entry dynamics is determined endogenously. We find that there is a short run...

This paper explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches. The new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large US military contractors....