entry cost the tobin tax and noise trading in the foreign exchange market two types of policy have been proposed to eliminate noise trading in the foreign exchange market increasing the entry cost or imposing a tobin tax type of transaction tax in this paper we endogenize entry decisions of both informed traders and noise traders and show that these policies may be ineffective in reducing exchange rate volatility this is because these policies will discourage the entry of all traders so they may not change the relative ratio of traders or they may affect informed traders disproportionately more which increases the relative ratio of noise traders and exchange rate volatility deux types de politiques ont ete proposees pour eliminer le bruit transactionnel qui empeche le prix d etre parfaitement revelateur dans le marche des changes accroitre le cout a l entree ou imposer une taxe a la tobin sur les transactions dans ce texte on endogenise les decisions a l entree a la fois des operateurs informes et des autres qui n ont pas d information significative et on montre que ces politiques sont ineffectives pour reduire la volatilite du taux de change c est que ces politiques decouragent l entree de tous les operateurs en consequence elles peuvent ne pas changer le ratio des deux types d operateurs ou peuvent meme affecter les operateurs informes davantage ce qui accroit l importance relative des moins informes et donc la volatilite du taux de change

spoilt for choice multinational corporations and the geography of international production this paper questions the view that foreign direct investment fdi is producing an integrated world production and trading system although multinational firms have a greater choice of locations than in the past their recent investments abroad have taken place within a regional rather than global framework the upsurge of fdi flows from north to south has been attracted by just a handful of fast growing developing countries the paper disputes the claim that the road to development is for poor countries to attract fdi on the scale observed in such countries as malaysia this claim involves a fallacy of composition while fdi can make a valuable contribution most countries will have to rely mainly on their own resources and indigenous producers the paper argues that current proposals for a multilateral agreement on investment neglect both the regional aspects of integration and the need of poorer countries to promote their domestic supply capabilities conflicts of interest which are ignored in the current rhetoric suggest the continuing relevance of a strategic policy approach to international production copyright 1998 by oxford university press

the dynamics of international capital flows results from a dynamic hierarchical factor model abstract the present paper examines the degree of comovement of gross capital inflows which is a highly sensitive issue for policy makers we estimate a dynamic hierarchical factor model that is able to decompose inflows in a sample of 47 economies into i a global factor common to all types of flows and all recipient countries ii a factor specific to a given type of capital inflows iii a regional factor and iv a country specific component we find that the latter explains by far the largest fraction of fluctuations in capital inflows followed by regional factors which are particularly important for emerging markets fdi and portfolio inflows as well as bank lending to emerging europe the global factor however explains only a small share of the overall variation we also employ dynamic panel and time series regressions to explain the determinants of the estimated components the global factor is shown to reflect u s financial conditions

on cross border bank credit and the u s financial crisis transmission to equity markets this paper examines the role played by cross border equity bond and bank credit flows versus international trade in the transmission of the u s financial crisis to equity markets worldwide we estimate vector autoregressive models with exogenous global factors using monthly data on 36 emerging and developed countries the results from an eclectic methodology that includes causality tests generalized impulse responses and forecast error variance decompositions indicate that the crisis is mostly transmitted through bank credit rather than portfolio flows and international trade the results are robust to altering the exogenous versus endogenous vectors of variables to measuring equity prices in u s dollars or local currency to averaging the data across countries versus averaging the parameters from individual country estimation and to redefining the start date of the crisis the findings endorse the use of banking regulation and capital controls as part of the policy toolkit to limit financial vulnerability

the case for gdp indexed bonds gds indexed bonds this paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of gdp we show that gdp indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro cyclical fiscal policies we simulate the effects of gdp indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood of debt gdp paths becoming explosive the insurance premium would likely be small because cross country comovement of gdp growth rates is low and cross country gdp growth risk is thus largely diversifiable for an investor holding a portfolio of gdp indexed bonds potential obstacles to the emergence of a market for these bonds include the verifiability of gdp data the trade off between insurance and moral hazard and the need for liquidity theory and past experience suggest that financial innovation often requires official intervention and its timing and form are difficult to predict we discuss institutional fixes and suggest an approach for attempting to start up a market eduardo borensztein and paolo mauro

new keynesian macroeconomics and the term structure this article complements the structural new keynesian macro framework with a no arbitrage affine term structure model whereas our methodology is general we focus on an extended macro model with an unobservable time varying inflation target and the natural rate of output which are filtered from macro and term structure data we obtain large and significant estimates of the phillips curve and real interest rate response parameters our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks the inflation target dominates the variation in the level factor whereas the monetary policy shocks dominate the variation in the slope and curvature factors

hot money in bank credit flows to emerging markets during the banking globalization era this paper investigates the relative importance of hot money in bank credit and portfolio flows from the us to 18 emerging markets over the period 1988 2012 we deploy state space models a la kalman filter to identify the unobserved hot money as the temporary component of each type of flow the analysis reveals that the importance of hot money relative to the permanent component in bank credit flows has significantly increased during the 2000s relative to the 1990s this finding is robust to controlling for the influence of push and pull factors in the two unobserved components the evidence supports indirectly the view that global banks have played an important role in the transmission of the global financial crisis to emerging markets and endorses the use of regulations to manage international capital flows

heterogeneous expectations and bond markets this paper presents a dynamic equilibrium model of bond markets in which two groups of agents hold heterogeneous expectations about future economic conditions the heterogeneous expectations cause agents to take on speculative positions against each other and therefore generate endogenous relative wealth fluctuation the relative wealth fluctuation amplifies asset price volatility and contributes to the time variation in bond premia our model shows that a modest amount of heterogeneous expectations can help explain several puzzling phenomena including the excessive volatility of bond yields the failure of the expectations hypothesis and the ability of a tent shaped linear combination of forward rates to predict bond returns the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

the cyclical properties of disaggregated capital flows abstract we analyze the second moment properties of the components of international capital flows and their relationship to business cycle variables output investment and the real interest rate in 22 industrial and emerging countries total inward flows are procyclical with respect to all three macro variables net outward flows are countercyclical with respect to output and investment in most industrial and emerging countries disaggregated inward flows positively comove with output in industrial countries and with investment and the real interest rate in the g7 economies inward foreign direct investment is the only non procyclical type of inward capital flows with respect to output in the developing economies formal statistical tests based on nonparametric bootstrap techniques detect significant variance increases in all g7 countries disaggregated capital flows over exogenous and endogenously estimated breaks

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

fractionalization entrepreneurship and the institutional environment for entrepreneurship the vast majority of the literature on ethnicity and entrepreneurship focuses on the construct of ethnic entrepreneurship however very little is known about how ethnic heterogeneity affects entrepreneurship and the institutional arrangements affecting entrepreneurship this study attempts to fill the gap and thus examines the effect of ethnic heterogeneity on various outcomes associated with entrepreneurship and the institutional environment for entrepreneurship using indices of ethnic and linguistic fractionalization we show that ethnic heterogeneity negatively influences entrepreneurship we argue that potential channels that can explain the negative effect of fractionalization on entrepreneurship include trust social network and innovation among others this study provides a new perspective on the existing debate that seeks to understand why the levels of entrepreneurial success vary across countries

do some forms of financial flows help protect against sudden stops there is a debate on whether some forms of financial flows offer better protection against crises than others using a large panel data set that includes advanced emerging and developing economies during 1970 2003 this article analyzes the behavior of several types of flows foreign direct investment fdi portfolio equity investment portfolio debt investment other flows to the official sector other flows to banks and other flows to the nonbank private sector differences across types of flows are limited with respect to volatility persistence cross country co movement and correlation with growth at home or in the world economy however consistent with conventional wisdom fdi is the least volatile form of financial flow when the average size of net or gross flows is taken into account the differences are striking during sudden stops in financial flows defined as drops in total net financial inflows of more than percentage points of gross domestic product gdp compared with the previous year in such episodes fdi is remarkably stable and portfolio equity seems to play a limited role portfolio debt experiences a reversal though it recovers relatively quickly and other flows including bank loans and trade credit experience severe drops and often remain depressed for a few years

changes in the second moment properties of disaggregated capital flows abstract using formal statistical tests we detect i significant volatility increases for various types of capital flows for a period of changes in business cycle comovement among the g7 countries and ii mixed evidence of changes in covariances and correlations with a set of macroeconomic variables

taylor rules mccallum rules and the term structure of interest rates abstract recent empirical research shows that a reasonable characterization of federal funds rate targeting behavior is that the change in the target rate depends on the maturity structure of interest rates and exhibits little dependence on lagged target rates see for example cochrane and piazzesi 2002 the fed and interest rates a high frequency identification american economic review 92 90 95 the result echoes the policy rule used by mccallum 1994a monetary policy and the term structure of interest rates nber working paper no 4938 to rationalize the empirical failure of the expectations hypothesis applied to the term structure of interest rates that is rather than forward rates acting as unbiased predictors of future short rates the historical evidence suggests that the correlation between forward rates and future short rates is surprisingly low mccallum showed that a desire by the monetary authority to adjust short rates in response to exogenous shocks to the term premiums imbedded in long rates i e yield curve smoothing along with a desire for smoothing interest rates across time can generate term structures that account for the puzzling regression results of fama and bliss 1987 the information in long maturity forward rates the american economic review 77 680 392 mccallum also clearly pointed out that this reduced form approach to the policy rule although naturally forward looking needed to be studied further in the context of other response functions such as the now standard taylor 1993 discretion versus policy rules in practice carnegie rochester conference series on public policy 39 195 214 rule we explore both the robustness of mccallum s result to endogenous models of the term premium and also its connections to the taylor rule we model the term premium endogenously using two different models in the class of affine term structure models studied in duffie and kan 1996 a yield factor model of interest rates mathematical finance 57 405 443 a stochastic volatility model and a stochastic price of risk model we then solve for equilibrium term structures in environments in which interest rate targeting follows a rule such as the one suggested by mccallum i e the mccallum rule we demonstrate that mccallum s original result generalizes in a natural way to this broader class of models to understand the connection to the taylor rule we then consider two structural macroeconomic models which have reduced forms that correspond to the two affine models and provide a macroeconomic interpretation of abstract state variables as in ang and piazzessi 2003 a no arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables journal of monetary economics 50 745 787 moreover such structural models allow us to interpret the parameters of the term structure model in terms of the parameters governing preferences technologies and policy rules we show how a monetary policy rule will manifest itself in the equilibrium asset pricing kernel and hence the equilibrium term structure we then show how this policy can be implemented with an interest rate targeting rule this provides us with a set of restrictions under which the taylor and mccallum rules are equivalent in the sense if implementing the same monetary policy we conclude with some numerical examples that explore the quantitative link between these two models of monetary policy

international capital flows to emerging markets national and global determinants using a novel dataset for emerging markets we empirically investigate the nature and determinants of aggregate and disaggregate capital inflows we present formal statistical evidence of commonalities in capital inflows with the strongest evidence for the level of equity and bank flows advanced economy long run bond yields and commodity prices are identified as determinants of global capital flows we also consider the national determinants of capital flows finding that financial openness and institutions matter for country flows finally we identify important commonalities in the volatility of bank inflows

capital market imperfections international credit markets and nonconvergence abstract we consider a two country growth model with international capital markets these markets fund capital investment in both countries and operate subject to a costly state verification csv problem investors in each country require some external finance but also provide internal finance which mitigates the csv problem when two identical except for their initial capital stocks economies are closed they necessarily convergemonotonicallyto the same steady state output level unrestricted international financial tradeprecludesotherwise identical economies from converging and poor countries are necessarily net lenders to rich countries oscillation in real activity and international capital flows can occur journal of economic literatureclassification numbers e00 f00 f34 g14

on the effectiveness of capital controls the experience of colombia during the 1990s abstract this paper analyzes the effectiveness of capital controls in colombia the evidence presented points towards a relative inability of the measures adopted to reduce the level of capital inflows nonetheless the evidence suggests that non remunerated deposits have been successful in inducing a recomposition of foreign liabilities in favor of long term maturities it is likely that this is a positive result as it has made the country less vulnerable to a reversal in capital flows in this sense controls may be viewed as an effective way of internalizing the negative externality imposed by short term maturities

what do we know about the global financial safety net a new comprehensive data set abstract this paper provides a comprehensive database covering four elements of the gfsn foreign exchange reserves imf financing central bank swap lines and regional financing arrangements for over 150 countries in the sample period 1960 2014 it also presents some key stylised facts regarding the provision of gfsn financing finally it concludes with some avenues for further research on the possible evolution of the gfsn an update of the data including years 2015 2018 will also be provided online

on the consequences of sudden stops our analysis shows a number of interesting empirical regularities first when we apply a simple definition of sudden stops we find that they have been a fairly common occurrence at least since the late 1970s second economic performance after a sudden stop can differ dramatically across countries depending on certain country characteristics we show that open economies and those that choose a floating exchange rate regime after a crisis recover fairly quickly from the output contraction that usually comes with the sudden stop whereas countries with liability dollarization recover more slowly these characteristics relate to how the economies adjust exports and imports during the aftermath of a sudden stop open economies that do not show much liability dollarization tend to show higher export growth and less import contraction than highly dollarized economies the paper is organized as follows the next section discusses our definition of sudden stops we then examine the stylized facts associated with sudden stops including their regional coverage and evolution over time a subsequent section proceeds to identify the key factors that explain the nature of the aftermath of a sudden stop in capital flows if sudden stops remain a recurrent feature of emerging market economies in years to come the issue of how to ensure a quick return of growth in the aftermath of a crisis will require attention policy recommendations focused on improving such ex post performance should go hand in hand with traditional prevention measures designed to avoid the crises we elaborate on these conclusions in the final section

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

hot money accounting labels and the permanence of capital flows to developing countries an empirical investigation using maximum likelihood kalman filtering techniques and non parametric variance ratio statistics we gauge the relative importance of permanent and temporary components of capital flows to latin american and asian developing countries over the period 1988 1997 for the broad categories of flows in the capital account equity flows ef bond flows bf official flows of commercial bank credit bc and foreign direct investment fdi we find relatively low permanent components in ef bf and of while commercial bc flows appear to contain quite large permanent components and fdi flows are almost entirely permanent these results have a natural interpretation and clear policy implications

intertemporal asset pricing with heterogeneous beliefs abstract we examine the behaviour of the interest rate asset prices and asset holdings in an economy with heterogeneous rationally updated beliefs about the expected rate of production growth the equilibrium interest rate is a weighted average of the interest rates that would prevail in economies populated by homogeneous agents with the beliefs of the respective agents in the heterogeneous model the weights are given by the fractions of total wealth held financial innovation affects the dynamics of allocations and prices but preserves the aggregate output process and the structure of equilibrium asset prices also display the wealth weighted average characterization journal of economic literature classification numbers c60 d52 d91 g12

macroeconomic volatility and welfare in developing countries an introduction macroeconomic volatility both a source and a reflection of underdevelopment is a fundamental concern for developing countries their high aggregate instability results from a combination of large external shocks volatile macroeconomic policies microeconomic rigidities and weak institutions volatility entails a direct welfare cost for risk averse individuals as well as an indirect one through its adverse effect on income growth and development this article provides a brief overview of the recent literature on macroeconomic volatility in developing countries highlighting its causes consequences and possible remedies it then introduces the contributions of a recent conference on the subject sponsored by the world bank and pompeu fabra university barcelona

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

self employment and the earnings of immigrants we examine the question of the economic returns to immigrants engaged in self employment based on samples of four entrepreneurial immigrants plus control samples of blacks and whites from the 1980 u s public use microdata sample we find large differences in the net effect of self employment depending on the use of a linear absolute dollar values or loglinear relative returns form we examine various explanations for the discrepancy and identify the role of outliers as significant the loglinear form fits the data better but at the cost of obliterating substantively important information namely the preponderance of the self employed among positive outliers effects of excluding the latter from the linear form and the theoretical and policy implications of alternative specifications of the earnings equation are examined excerpt

two trees with heterogeneous beliefs spillover effect of disagreement in a model where investors disagree about the fundamentals of two stocks the state price density depends on investor disagreements for both stocks especially the larger stock this implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks owned by these investors the pricing effects of investor disagreements crucially depend on the average belief biases empirical findings support the novel model prediction of a disagreement spillover effect and help reconcile some mixed evidence in the literature

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

a macro finance model of the term structure monetary policy and the economy this paper develops and estimates a macro finance model that combines a canonical affine no arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation from this new empirical formulation we obtain several interesting results 1 the latent term structure factors from finance no arbitrage models appear to have important macroeconomic and monetary policy underpinnings 2 there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the federal reserve and 3 both forward looking and backward looking elements play important roles in macroeconomic dynamics

the catalytic effect of lending by the international financial institutions for many less developed countries ldcs and countries in transition cits external financing is frequently an effective constraint on economic growth and development capital inflows may be used to overcome shortages of domestic saving thereby permitting higher levels of investment as well as shortages of foreign exchange thereby permitting larger quantities of imports

portfolio capital flows hot or cold a distinction is often made between short term and long term capital flows the former are deemed unstable hot money and the latter are deemed stable cold money using time series analysis of balance of payments data for five industrial and five developing countries we find that in most cases the labels short term and long term do not provide any information about the time series properties of the flow in particular long term flows are often as volatile as short term flows and the time it takes for an unexpected shock to a flow to die out is similar across flows long term flows are also at least as unpredictable as short term flows and knowledge of the type of flow does not improve the ability to forecast the aggregate capital account copyright 1995 by oxford university press

institutions and the external capital structure of countries abstract a widespread view holds that countries that finance themselves through foreign direct investment and portfolio equity rather than bonds and loans are less prone to crises but what determines countries external capital structures in a cross section of advanced economies emerging markets and developing countries we find that equity like liabilities as a share of countries total external liabilities are positively and significantly associated with indicators of educational attainment openness natural resource abundance and especially institutional quality these relationships are robust to attempts to control for possible endogeneity suggesting that better institutional quality may help improve countries external capital structures

interest rates uncertainty and the livingston data the observed relationship between the standard deviation of forecasts and past forecast errors as found in the livingston survey suggests the interpretation of the standard deviation as a measure of inflation uncertainty the mean and the standard deviation for the inflation rate forecast found in the livingston survey furthermore are used as regressors in a reduced form interest rate equation the results indicate a large negative effect of such uncertainty on interest rates the inclusion of the uncertainty measure and commonly omitted lagged values of all variables in our analysis of data leads to more theoretically plausible estimated effects of money growth and expected inflation on interest rates than do standard estimates

the composition of international capital flows risk sharing through foreign direct investment abstract evidence on international capital flows suggests that foreign direct investment fdi is less volatile than other financial flows to explain this finding i model international capital flows under the assumptions of imperfect enforcement of financial contracts and inalienability of fdi imperfect enforcement of contracts leads to endogenous financing constraints and the pricing of default risk inalienability implies that it is not as advantageous to expropriate fdi relative to other flows these features combine to give a risk sharing advantage to fdi over other capital flows this risk sharing advantage of fdi translates into a lower default premium and lower sensitivity to changes in a country s financing constraint the model offers the new implication that financially constrained countries should borrow relatively more through fdi this is because fdi is harder to expropriate and not because fdi is more productive or less volatile using several creditworthiness and country risk ratings to measure financing constraints i present new evidence linking fdi and financing constraints moreover numerical simulations of the model generate stronger serial correlation for fdi than for other flows into developing countries this corroborates the view that non fdi flows are more short term and more likely to change direction

are shocks to foreign investment in developing countries permanent or temporary abstract we examine the time path of foreign direct and portfolio investment in developing countries to test if shocks have permanent or temporary effects our findings indicate that shock effects are temporary the results are robust to the strictness of balance of payment controls

inflation risk premia and the expectations hypothesis abstract we study the properties of the nominal and real risk premia of the term structure of interest rates we develop and solve the bond pricing implications of a structural monetary version of a real business cycle model with taxes and endogenous monetary policy we show the relation of this model with the class of essentially affine models that incorporate an endogenous state dependent market price of risk we characterize and estimate the inflation risk premium and find that over the last 40 years the ten year inflation risk premium has been has averaged 70 basis points it is time varying ranging from 20 to 140 basis points over the business cycle and its term structure is sharply upward sloping the inflation risk premium explains 23 42 of the time variation in the five ten year forward risk premium and it plays an important role in help explain deviations from the expectations hypothesis of interest rates

asset pricing in a monetary economy with heterogeneous beliefs in this paper we shed new light on the role of monetary policy in asset pricing by examining the case in which investors have heterogeneous expectations about future monetary policy this case is realistic because central banks are typically less than perfectly open about their intentions accordingly surveys of economists reveal that they frequently disagree in their expectations under heterogeneity in beliefs investors place speculative bets against each other on the evolution of the money supply and as a result the sharing of wealth in the economy evolves stochastically employing a continuous time equilibrium model we show that these fluctuations majorly affect the prices of all assets as well as inflation our model could help explain some empirical puzzles in particular we find that the volatility of bond yields and stock market volatility could be significantly increased by the heterogeneity in beliefs a conclusion supported by our empirical analyses this paper was accepted by wei xiong finance

bond yields and the federal reserve bond yields respond to policy decisions by the federal reserve and vice versa to learn about these responses i model a high frequency policy rule based on yield curve information and an arbitrage free bond market in continuous time the fed s target is a pure jump process jump intensities depend on the state of the economy and the meeting calendar of the federal open market committee the model has closed form solutions for yields as functions of a few state variables introducing monetary policy helps to match the whole yield curve because the target is an observable state variable that pins down its short end and introduces important seasonalities around fomc meetings the volatility of yields is snake shaped which the model explains with policy inertia the policy rule crucially depends on the two year yield and describes fed policy better than taylor rules

general equilibrium real and nominal interest rates we derive the general equilibrium short term real and nominal interest rates in a monetary economy affected by technological and monetary shocks and where the price level dynamics is endogenous assuming fairly general processes for technology and money supply we show that an inherent feature of our equilibrium is that any real variable dynamics in particular that of the short term real interest rate is driven by both monetary and real factors this money non neutrality is generic as it does not stem from any friction such as price stickiness or from a particular utility function non neutrality obtains because the ex ante cost of real money holdings is random due to inflation uncertainty we then analyze in depth a specialized version of this economy in which the state variables follow square root processes and the representative investor has a log separable utility function the short term nominal rate dynamics we obtain encompasses most of the dynamics present in the literature from vasicek and cir to recent quadratic and more generally non linear interest rate models moreover our results pave the way to several new nominal term structures

the falsification of four popular hypotheses about the asian crisis various claims have been made about the causes of the asian crisis and its spread here we use data on the behaviour of capital flows during the crisis to test the strong forms of four such hypotheses that portfolio investors and hedge funds played a dominant role in initiating and or spreading the crisis that moral hazard kept efficient markets from predicting the crisis and finally the common lender hypothesis of kaminsky and reinhart in the process we also test implications of the calvo mendoza model of rational investor ignorance all are falsified as monocausal explanations for example portfolio investments that could not have been subject to substantial moral hazard continued to flow into asia until very shortly before the crisis likewise banks were a much larger source of capital outflows during the crisis than were portfolio investors while falsified in their strongest forms several of these hypotheses in less strong forms should play a role in a more nuanced analysis it is necessary to move past simple single factor approaches in order to produce a more complete synthetic explanation of this episode

bubble thy neighbor portfolio effects and externalities from capital controls we use changes in brazil s tax on capital inflows from 2006 to 2013 to test for direct portfolio effects and externalities from capital controls on investor portfolios we find that an increase in brazil s tax on foreign investment in bonds causes fund managers to significantly decrease their portfolio allocations to brazil in both bonds and equities fund managers simultaneously increase allocations to other countries that have substantial exposure to china and decrease allocations to countries viewed as more likely to adjust their capital controls much of the effect of capital controls on portfolio allocation appears to occur through signalling i e changes in investor expectations about future policies rather than the direct cost of the controls this evidence of significant externalities from capital controls suggests that any assessment of controls should consider their effects on portfolio flows to other countries

ethnic enclaves and the earnings of self employed latinos in the investigation reported here i have tested the ethnic enclave hypothesis focusing on self employed cuban and mexican immigrants specifically i have compared the economic returns for self employed cuban immigrants in florida with those of mexican immigrants in california and texas the analysis shows that self employed mexican immigrants who remain within mexican enclaves earn substantially lower earnings than those in non enclave environments in contrast the earnings of cuban immigrants self employed within cuban enclaves are comparable to those earned by cubans employed within the general labor market overall my findings are contrary to the ethnic enclave hypothesis which suggests that there are economic advantages associated with owning firms in ethnic enclaves

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed