For a country that chooses not to "permanently" fix its exchange rate through a currency board, or a common currency, or some kind of dollarization, the only alternative monetary policy that can work well in the long run is one based on the trinity of (i) a flexible exchange rate, (ii) an inflation target, and (iii) a monetary policy rule.' While not often put into this threepart format, the de...

Abstract: This paper studies the transmission properties of US shocks to six Latin American countries. A model, underlying possible channels of transmissions, is presented and restrictions implied by the model are used to identify shocks. Empirically US shocks are extracted using the new two-step procedure of Canova and De Nicolo' (1999) and treated as exogenous with respect to Latin American e...

The first essay explains why credit contracts in developing countries are often denominated in foreign currencies, even after many of these economies succeeded in controlling inflation. I propose a new interpretation based on the demand for insurance against real aggregate shocks. The fact that devaluations occur more frequently in adverse states of the world provides a motive for holding dolla...

Recently, and partly as a result of the currency crises in emerging markets, a broad debate on reforming the international financial system has begun. Talk of a “new financial architecture” abounds, and academics, financiers, and politicians have offered blueprints for reforming existing institutions. Some have talked of creating a global lender of last resort, while others have argued that it ...

Th e Russian ruble depreciated sharply in 2014 after the US embargo was imposed, just one day it lost 19% of its value, which biggest daily drop previous 16 years. Inflation has reached a three-year high. The reasons for sharp decline indicators economy were factors oil prices, sanctions against co untry and insufficient effective management. article discusses Russia’s anti-sanctions actions at...

This paper develops a unified framework for examining international payment patterns. Using an open-economy search model with competing monetary assets, I show how information costs and government transaction policies interact to produce a structure of world payments reminiscent with what is observed in practice. Agents’ decision to acquire information shapes exchange patterns by affecting a cu...

This paper explores sources of deposit dollarization unrelated to standard moral hazard arguments. We develop a model in which banks choose the optimal currency composition of their liabilities. We argue that the equal treatment of peso and dollar claims in the event of bank default can induce banks to attract dollar deposits above the socially desirable level. The distortion arises because dol...

The slump of the Canadian Dollar against the U.S. Dollar over the last years has led many observers to speculate that the Canadian Dollar is in secular decline, prompting demands for a U.S.-dollarization or even a common currency for North America. However, there is no robust empirical evidence to support the notion of a ‘secular’ decline. An econometric model of the nominal USD/CAD exchange ra...