This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence...

To what extent is the recent spike in inflation driven by a change in its permanent component? We estimate a semi-structural model of output, inflation, and the nominal interest rate in the United States over the period 1900-2021. The model predicts that between 2019 and 2021 the permanent...