An undistorted free market economy endowed with perfectly rational and informed agents overborrows, i.e., borrows beyond the efficient level, because of the agents' failure to internalize credit rationing resulting from sovereign risk. It follows that the elimination of the market overborrowing...

Can absolute minimum capital rules be used by lower-income countries when Basel-inspired capital rules are insufficient for their high equity, high-risk contexts? We discuss the limitations of standard capital rules for reducing bank risk in less developed financial systems and quantitatively...

We analyze how concerns for model misspecification on the part of international lenders affect the desirability of issuing state-contingent debt instruments in a standard sovereign default model à la Eaton and Gersovitz (1981). We show that for the commonly used threshold state-contingent bond...

We show that asset opacity can improve the efficiency of investment in the economy. We consider a model where underinvestment arises from speculative cash-hoardings aiming to benefit from fire-sale prices. Whereas opacity provides no benefit to asset originators in the case of isolated...

We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms look to a variety of noisy information sources when making input decisions. We devise a novel empirical strategy that uses a combination of firm-level...

This paper investigates inflation thresholds that lead to higher growth rates using five-year averages of standard variables for 84 countries from 1965 to 2004. The historical experience has important policy implications for developing countries: (i) the catch-up effect has worked only when...

Restrictions on international capital transactions and other payments are usually designed to limit volatile short-term capital flows ( hot money ) and stabilize the exchange rate. Their imposition, however, may have the opposite effect by inadvertently signaling the continuation of...

Die von der Asienkrise (1997-99) betroffenen Staaten wiesen im Vorfeld der Krise positive Fundamentaldaten auf. Traditionelle Krisentheorien konnten deshalb nicht zur Erklärung der Krise herangezogen werden. In diesem Paper wird ein alternativer Erklärungsansatz für Finanzkrisen in offenen...

Explication of reality may draw tools outside the phenomenon. That is the essence of case study, and the epistemological motivation of this paper. The paper illuminates the space of PPP policy in the UK. Yet, that illumination raises questions that stand to guide other countries, and the paper...

The post-2008 period focused attention on "twin-crises". Banking crises may lead to sovereign crises where fiscal vulnerabilities are exacerbated by the extension of support for the banking system. We develop a model that describes private sector generated capital inflow that is used to finance...