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Working Paper
The mirage of fixed exchange rates
This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises.
Working Paper
Global versus country-specific productivity shocks and the current account
The intertemporal approach to the current account is often regarded as theoretically elegant but of limited empirical significance. This paper derives highly tractable current account and investment specifications that we estimate without resorting to calibration or simulation methods. In time-series data for eight industrialized countries, we find that country-specific productivity shocks tend to worsen the current account, whereas global shocks have little effect. Both types of shock raise investment. It is a puzzle, however, for the intertemporal model that long-lasting local productivity ...
Conference Paper
The unsustainable U.S. current account position revisited
We show that the when one takes into account the global equilibrium ramifications of an unwinding of the US current account deficit, currently running at nearly 6% of GDP, the potential collapse of the dollar becomes considerably larger (more than 50% larger) than our previous estimates (Obstfeld and Rogoff 2000a). It is true that global capital market deepening appears to have accelerated over the past decade (a fact documented by Lane and Milesi-Ferreti (2005) and recently emphasized by US Federal Reserve Chairman Alan Greenspan), and that this deepening may have helped allowed the United ...
Conference Paper
The unsustainable U.S. current account position revisited
Conference Paper
Developing country borrowing and domestic wealth
Working Paper
Capital Controls: Myth and Reality, A Portfolio Balance Approach to Capital Controls
The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology–furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: ...