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Financial fragility in emerging market countries: Firm balance sheets and the productive structure

We build an overlapping generation model to study financial fragility in a two-sector small open economy. Firms are subject to a borrowing constraint and there is a currency mismatch in the balance sheets of the non-tradable sector. As a consequence, at a given point in time, multiple equilibria may arise, which makes self-fulfilling balance of payments crises possible. This state of financial fragility requires that firms producing non-tradable goods are sufficiently leveraged and that the relative size of the non-tradable sector is sufficiently large with regards to the tradable sector. We study under what conditions the endogenous evolution of these two structural factors, firm balance sheets and the productive structure, along an equilibrium path, eventually leads to a financially fragile state.Nous construisons un modèle à générations imbriquées qui permet d'étudier la fragilité financière d'une petite économie ouverte à deux secteurs. Les entreprises subissent une contrainte de crédit et les firmes produisant des biens non échangeables sont endettées en biens échangeables. De ce fait, il peut y avoir des équilibres multiples à un instant donné du temps, ce qui rend possibles des crises auto-réalisatrices de balance des paiements. Cet état de fragilité financière nécessite un niveau d'endettement suffisant dans le bilan des firmes du secteur abrité et une taille relative de ce secteur suffisamment grande par rapport au secteur exposé. Nous déterminons les conditions auxquelles l'évolution endogène, le long d'une trajectoire d'équilibre, de ces deux facteurs, la structure de bilan des firmes abritées et la structure productive, mène à terme à un état de fragilité financière

OPTIMAL EXCHANGE RATE POLICY IN A GROWING SEMI-OPEN ECONOMY

www.cepr.org Available online at: www.cepr.org/pubs/dps/DP9666.php www.ssrn.com/xxx/xxx/xxx ISSN 0265-800

Hybrid stochastic simulations of intracellular reaction-diffusion systems.

With the observation that stochasticity is important in biological systems, chemical kinetics have begun to receive wider interest. While the use of Monte Carlo discrete event simulations most accurately capture the variability of molecular species, they become computationally costly for complex reaction-diffusion systems with large populations of molecules. On the other hand, continuous time models are computationally efficient but they fail to capture any variability in the molecular species. In this study a hybrid stochastic approach is introduced for simulating reaction-diffusion systems. We developed an adaptive partitioning strategy in which processes with high frequency are simulated with deterministic rate-based equations, and those with low frequency using the exact stochastic algorithm of Gillespie. Therefore the stochastic behavior of cellular pathways is preserved while being able to apply it to large populations of molecules. We describe our method and demonstrate its accuracy and efficiency compared with the Gillespie algorithm for two different systems. First, a model of intracellular viral kinetics with two steady states and second, a compartmental model of the postsynaptic spine head for studying the dynamics of Ca+2 and NMDA receptors

La crise fi nancière : quels enseignements pour la macroéconomie internationale ? Synthèse de la conférence AEJ Macro/BDF/CEPR/ECARES/PSE des 28 et 29 octobre 2011.

La Banque de France, la revue American Economic Journal : Macroeconomics, l’École d’économie de Paris ainsi que les centres de recherche ECARES et CEPR ont organisé une conférence sur les enseignement macroéconomiques à tirer de la crise financière. Crise de la dette souveraine, déséquilibres mondiaux, propagation des chocs et coopération monétaire ont été les thèmes majeurs, donnant lieu à une prise de conscience renforcée des interactions entre les grandes zones économiques et le système fi nancier international.crise financière, défauts souverains, déséquilibres mondiaux,commerce international, transmission des chocs financiers.

Capital Controls with International Reserve Accumulation: Can this Be Optimal ?

Motivated by the Chinese experience, we analyze a semi-open economy where the central bank has access to international capital markets, but the private sector has not. This enables the central bank to choose an interest rate different from the international rate. We examine the optimal policy of the central bank by modelling it as a Ramsey planner who can choose the level of domestic public debt and of international reserves. The central bank can improve savings opportunities of credit-constrained consumers modelled as in Woodford (1990). We find that in a steady state it is optimal for the central bank to replicate the open economy, i.e., to issue debt financed by the accumulation of reserves so that the domestic interest rate equals the foreign rate. When the economy is in transition, however, a rapidly growing economy has a higher welfare without capital mobility and the optimal interest rate differs from the international rate. We argue that the domestic interest rate should be temporarily above the international rate. We also find that capital controls can still help reach the first best when the planner has more fiscal instruments

Optimal Exchange Rate Policy in a Growing Semi-Open Economy

This paper considers an alternative perspective to China's exchange rate policy. It studies a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, it assumes limited financial development generating a large demand for saving instruments by the private sector. The paper analyzes the optimal exchange rate policy by modeling the central bank as a Ramsey planner. Its main result is that in a growth acceleration episode it is optimal to have an initial real depreciation of the currency combined with an accumulation of reserves, which is consistent with the Chinese experience. This depreciation is followed by an appreciation in the long run. The paper also shows that the optimal exchange rate path is close to the one that would result in an economy with full capital mobility and no central bank intervention