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We argue that emerging economies borrow short term due to the high risk premium charged by international capital markets on long-term debt. First, we present a model where the debt maturity structure is the outcome of a risk sharing problem between the government and bond-holders. By issuing long-term debt, the government lowers the probability of a(More)
This paper provides welfare theoretic foundations for risk-adjusted capital flow regulations based on a standard class of macroeconomic models of financial crises that exhibit financial amplification dynamics. We show that during crisis episodes when such amplification effects are triggered, decentralized agents do not internalize that capital outflows are(More)
A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock: when the monetary policy shock takes place in the first two quarters of the year, the response of output is(More)
We use mutual fund manager data from the technology bubble to examine the hypothesis that inexperienced investors play a role in the formation of asset price bubbles. Using age as a proxy for managers' investment experience, we find that around the peak of the technology bubble, mutual funds run by younger managers are more heavily invested in technology(More)
One plausible mechanism through which financial market shocks may propagate across countries is through the impact that past gains and losses may have on investors' risk aversion and behavior. This paper presents a stylized model illustrating how heterogeneous changes in investors' risk aversion affect portfolio allocation decisions and stock prices. Our(More)
The paper discusses a model in which growth is a negative function of fiscal burden. Moreover, growth discontinuously switches from high to low as fiscal burden reaches a critical level. Growth collapse is associated with a sudden stop of capital inflows, real depreciation and a drop in output (driven by a fall in the output of nontradables)—all of which(More)
We present a model of sovereign debt in which, contrary to conventional wisdom, government defaults are costly because they destroy the balance sheets of domestic banks. In our model, better financial institutions allow banks to be more leveraged, thereby making them more vulnerable to sovereign defaults. Our predictions: government defaults should lead to(More)
We study theoretically how the adjustment to liberalization of international financial transaction depends upon the degree of domestic financial development. Using a model with domestic and international borrowing constraints, we show that, when the domestic financial system is underdeveloped, capital account liberalization is not necessarily beneficial(More)
We measure of the effects of debt dilution on sovereign default risk and show how these effects can be mitigated with contracts that specify debt-issuance-contingent obligations. First, we calibrate a baseline modeì a la Eaton and Gersovitz (1981) to match features of the data. In the baseline model bonds' values can be diluted. Second, we present a version(More)