Is The FX Derivatives Market Effective and Efficient in Reducing Currency Risk?

In a typical tactical asset allocation set up a manager receives compensation for his excess of return given a tracking error target. Critics of this framework cite its lack of control over the total portfolio risk. Current approaches recommend what we call a mixed allocation, derived from concerns about relative and absolute return and risk. This work provides an analytical framework for mixed tactical asset allocation, based on the premise that after the investor sets a tracking error target, a fundamental trade off remains unsolved: the one between excess of return and total risk. The article derives a separation theorem for tactical allocation, wherein the portfolio is a linear combination of an alpha portfolio providing excess returns and a beta portfolio providing overall risk hedge. The author shows how the formal expression summarizes all previous works. Moreover, it also includes the simplest Black-Litterman allocation.

Can Staggered Price Setting Explain Short-Run Inflation Dynamics?

This paper presents a model of staggered price setting that allows for a flexible distribution of the durations of the prices underlying aggregate price behavior, and estimates it with US data. When tested against an unrestricted version of this model, standard models of sticky prices are rejected. In contrast, a stylized model that assumes a trimodal distribution of price durations with clusters on the first, fourth, and eighth quarter after prices are set, easily passes the same test. In addition, this model is able to replicate the dynamic behavior of inflation and output found in the data.

Una Revisión de los Modelos de Formación de Precios

This paper contains a brief survey of price formation models which may be useful for macroeconomic analysis. The main focus is the capability of these models to answer three basic questions: who set prices, how are price levels chosen, and why are these d

Crisis Financieras Internacionales, Prestamista de Última Instancia y Nueva Arquitectura Financiera Internacional.

The international financial system (IFS) has undergone a series of financial crises over the past decade.This paper analyzes the shortcomings of said system (that have contributed to the crises) and, with them in mind, reviews and evaluates the IFS reform proposals for a “New International Financial Architecture.” These proposals are intended to resolve IFS imperfections on three fronts: better crisis prevention, better crisis resolution, and better governance at the IMF, the international quasi lender of last resort. Although a number of the proposals are academic, they have been useful for the reforms that the IMF has either implemented or supported actively. These include adopting standards and codes in 12 key areas for domestic and international financial stability, such as improved country monitoring, stricter conditions for financial aid granted to countries in crisis, better IMF governance, and new collective action clauses in issuing sovereign bonds. In contrast, the IMF has found no significant support for its proposals of creating a contingent credit line and adopting mechanisms to restructure sovereign debts. But no IFS reform is a good substitute for good fundamentals at the country level, that reflect strong macroeconomic and structural policies, the best way to reduce the probability of occurrence of liquidity or solvency crises.

Crisis Financieras Internacionales, Prestamista de Última Instancia Nacional e Internacional

The international financial system (IFS) has undergone a series of financial crises over the past decade. This paper analyzes the shortcomings of said system (that have contributed to the crises) and, with them in mind, reviews and evaluates the IFS reforLender of last resort, central banks, commercial banks, financial crises, international monetary fund