Elisabeth Huybens

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We evaluate the desirability of having an elastic currency generated by a lender of last resort that prints money and lends it to banks in distress. When banks cannot borrow, the economy has a unique equilibrium that is not Pareto optimal. The introduction of unlimited borrowing at a zero nominal interest rate generates a steady state equilibrium that is(More)
We produce an example of a small open economy for which small increases in the world interest rate may induce a sharp decline in output and a precipitous depreciation of the nominal and the real exchange rate (RER). Due to a costly state veri ̄cation (CSV) problem in domestic credit markets, combined with unrestricted international capital °ows, our economy(More)
We explore the role of domestic financial market frictions in explaining sharp movements in real and nominal exchange rates, capital flows, and output for a small open economy. Financial intermediaries arise endogenously to insulate depositors from the consequences of liquidity shocks and stochastic investment project returns, and to provide intermediation(More)
We test for the presence of market discipline in the banking sector in early 20 century Mexico. Using a panel of financial data from note-issuing banks between 1905 and 1910, we examine whether bank fundamentals influenced the pattern of withdrawals. When we do not control for exit, our estimation suggests that fundamentals were not a significant(More)
This chapter will present an empirical analysis of the type and source of real shocks to the Mexican economy. In particular, it will evaluate the following questions. How important are shocks that originate as exchange rate changes due to swings in market sentiment independent of the economic fundamentals? That is, how important is “excess volatility”? How(More)
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