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Working Paper
New results in support of the fiscal policy ineffectiveness proposition
We demonstrate that previous tests of money and fiscal "policy ineffectiveness" are likely to be biased because they ignore interaction effects between policies, induced either by direct policy linkages or through the variation of policies in response to common factors. Our analysis takes into account possible interactive effects between monetary and fiscal policy in an attempt to avoid the biases of previous research. Our empirical analysis of U.S. experience supports the short-run ineffectiveness of anticipated and unanticipated fiscal policy, in contrast to other empirical research, but ...
Working Paper
Navigating the trilemma: capital flows and monetary policy in China
In recent years China has faced an increasing trilemma?how to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China?s monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments inflows by sterilizing through the issuance of central bank liabilities. However, we report empirical ...
Conference Paper
Lessons from financial crisis: the Japanese case
Working Paper
Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations
We investigate the effects of IMF stabilization programs, and the reasons behind the unusually high IMF activity and relatively low program completion rates in Latin America. We base our tests on a panel, and distinguish between IMF program approvals and completion. We find that Latin America has higher output costs of IMF programs (especially when completed), no improvement in the current account, and a much higher likelihood of program failure and recidivism than other regions. The common finding that entering into an IMF-supported program incurs real short-run costs on the economy is ...
Working Paper
Currency crises, capital account liberalization, and selection bias
Are countries with unregulated capital flows more vulnerable to currency crises? Efforts to answer this question properly must control for "self selection" bias since countries with liberalized capital accounts may also have more sound economic policies and institutions that make them less likely to experience crises. We employ a matching and propensity score methodology to address this issue in a panel analysis of developing countries. Our results suggest that, after controlling for sample selection bias, countries with liberalized capital accounts experience a lower likelihood of currency ...
Working Paper
Asymmetries and state dependence: the impact of macro surprises on intraday exchange rates
The impact of news surprises on exchange rates depends in principle upon a number of factors including the state of the economy, institutional setting and nature of the expected policy response. These characteristics may lead to state-contingent asymmetric responses to news. In this paper we investigate the possible asymmetric response of intraday exchange rates (5-minute intraday JPY/USD) to macroeconomic news announcements during a very unusual period--Japan during 1999-2006 when the money market interest rate was effectively zero. We may think of this period as a "natural experiment" ...
Conference Paper
Monetary policy, intervention, and exchange rates in Japan