This paper further tests Romer’s (1993) extension of Kydland and Prescott’s (1977) predictions for dynamic-inconsistency problems in open economies. In a panel data set of developed and developing countries from 1973 to 1998, I find that openness does not play a role in restricting inflation in the short-run. On the other hand, a fixed exchange-rate regime plays a significant role. The results ...

w hether the united kingdom (uk) should remain in the european :union: (eu) or not has been a fiercely debated issue both before and after the referendum in the uk on june 23, 2016. the main purpose of this paper is to evaluate the pros and cons of the uk leaving the eu. it is concluded that if the uk leaves the eu, the resulting economic shock would risk adverse effects on macroeconomic variab...

Repayment versus Investment Conditions and Exclusivity in Lending Contracts Lenders condition future loans on some index of past performance. Typically, banks condition future loans on repayments of earlier obligations whilst international organizations (official lenders) condition future loans on the implementation of some policy action (‘investment’). We build an agency model that accounts fo...

The authors assess the stabilization properties of simple monetary policy rules within the context of a small open-economy model constructed around the limited-participation assumption and calibrated to salient features of the Canadian economy. By relying on limited participation as the main nominal friction that affects the artificial economy, the authors provide an important check of the robu...

In a typical procurement setup, several recent papers have shown that when complete contracting is not possible, simple, noncontingent contracts may suffice to solve the under-investment problem. This paper points out that a noncontingent contract offer such as a fixed-price contract may induce the seller to acquire information on the future course of costs and only to accept the offer if the c...

This paper examines conditions under which the agency problem in PPP (expropriation of the private partner by the state) could be rectified. We propose that the issue lies not in a ‘complete contract’ (a more protective ex ante contract) in mitigating the agency problem in PPP, but rather the opposite! A least protective contract (no contract at all), coupled with the dynamics of an optimal “in...

This paper estimates a new open economy macroeconomic model for South Korea to determine the output effect of currency devaluations. Three transmission mechanisms are considered: the expenditure-switching, the balance sheet, and a monetary channel associated to a nominal exchange rate target. Devaluations are defined as an increase in this target. This allows to isolate the effects of an explic...

Inflation targeting is gaining popularity as a framework for conducting monetary policy. At the same time many countries employ some sort of foreign exchange intervention policy assuming that these two policies can coexist. This paper attempts to show that both policies are not sustainable. Israel is a classic test case. We test our hypothesis using information from the financial markets. The r...

A major puzzle in international finance is the well-documented inability of models based on monetary fundamentals to produce better out-of-sample forecasts of the nominal exchange rate than a naive random walk. While this literature has generally employed statistical measures of forecast accuracy, we investigate whether there is any economic value to the predictive power of monetary fundamental...