It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence does not, however, suggest the existence of a robust correlation between these two endogenous variables that is independent of the nature...

We explore a model intended to capture the interaction between exchange rate policy, fiscal policy, and outright default on foreign-currency denominated debt. We examine how the exchange rate affects the supply of short-term debt facing the government. We show that under a credible hard peg...

In many developing countries the financial system is characterized by the absence of organized markets for securities and equities, by capital controls, and by legal ceilings on bank borrowing and lending rates, a situation which gives rise to parallel markets for foreign exchange and informal...

Even modest investment rates may achieve satisfactory rates of growth in the reforming economies of Eastern Europe because their relative capital scarcity implies high rates of productivity for capital. The most serious obstacle to private investment is uncertainty about the reform process,...

Over the past decades, workers' remittances have grown to become one of the largest sources of financial flows to developing countries, often dwarfing other widely-studied sources such as private capital and official aid flows. While it is undeniable that remittances have poverty-alleviating and...

This paper shows that the response of inflation to external shocks is very different when the authorities target the real exchange rate than when they follow a fixed exchange rate or a preannounced crawling peg. Specifically, shocks that would have no effect on the steady-state inflation rate...

This paper investigates the impact of workers’ remittances on equilibrium real exchange rates (ERER) in recipient economies. Using a small open economy model, it shows that standard "Dutch Disease" results of appreciation are substantially weakened or even overturned depending on: degree...

This paper reviews monetary transmission mechanisms in low-income countries (LICs) to identify aspects of the channels that may operate differently in LICs relative to advanced and emerging economies. Given the weak institutional frameworks, reduced role of securities markets, imperfect...

In many developing countries the financial system is characterized by the absence of organized markets for securities and equities, by capital controls, and by legal ceilings on bank borrowing and lending rates, a situation which gives rise to parallel markets for foreign exchange and informal...