Despite the fact that Argentina has been suffering from a recession for years, the timing and severity of the recent currency crisis surprised most observers. This paper analyzes the role of fundamentals and self-fulfilling speculation in the Argentinean crisis. Arguing within a theoretical model of a fixed exchange rate system that allows for multiple equilibria, we show that the crisis, while being ...
Despite the fact that Argentina has been suffering from recession for years the timing and severity of the recent currency crisis has surprised most observers. This paper analyzes whether the "early warning" or "signals" approach of Kaminsky (1998), Kaminsky/Lizondo/Reinhart (1998) and Kaminsky/Reinhart (1999) could have predicted the Argentinean currency crisis at an earlier point in time. Using a ...
We study the effect of politics on the distribution of intergovernmental grants. We consider a model where local government officials lobby the central government who in turn distributes grants based on the local governments' lobbying efforts. We argue that the marginal costs of lobbying increase with the geographical and "political" distance from the central government capital. Hence, in equilibrium, ...
We present a model of optimal government policy when policy choices may exacerbate socio-political instability (SPI). We show that optimal policy that takes into account SPI transforms a standard concave growth model into a model with both a poverty trap and endogenous growth. The resulting equilibrium dynamics inherit the properties of government policies and need not be monotone. Indeed, for a broad ...