Credit constraints that link a private agent's debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and (constrained) socially optimal equilibria, which induces private agents to ``overborrow". We quantify the effects of this externality...

We propose a macroprudential theory of foreign reserve accumulation that can rationalize the secular trends in public and private international capital flows. In middle-income countries, the increase in international reserves has been associated with elevated private capital inflows, both in the...

In this paper, we revisit the scope for macroprudential policy in production economies with pecuniary externalities and collateral constraints. We study competitive equilibria and constrained-efficient equilibria and examine the extent to which the gap between the two depends on the production...

Credit constraints that link a private agent’s debt to market-determined prices embody a credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to overborrow. The externality arises because agents fail to internalize the...

This paper proposes a theory of foreign reserves as macroprudential policy. We study an open-economy model of financial crises in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient...

How does the optimal design of macroprudential capital controls depend on the ability of some agents to circumvent regulation? To address this question, we study the interaction between a regulated and an unregulated sphere in a model economy where pecuniary externalities calls for ex-ante...

A long-standing puzzle of international capital flows is why countries hold large amount of external debt and foreign reserves at the same time. To address this puzzle, we propose a sovereign default model where the government decides jointly over the accumulation of long-duration bonds and...

This paper develops a non-linear DSGE model to assess the interaction between ex-post interventions in credit markets and the build-up of risk ex ante. During a systemic crisis, bailouts to the financial sector relax balance sheet constraints and accelerate the economic recovery. Ex ante, the...

Credit constraints that link a private agent's debt to market-determined prices embody a credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to ``overborrow." The externality arises because agents fail to internalize the...