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Must Original Sin Cause Macroeconomic Damnation?

  • Luis Felipe Céspedes;
  • Roberto Chang
  • Andrés Velasco

Original sin, coupled with other financial imperfections, causes macroeconomic penance of two kinds: adverse shocks have larger and more persistent effects and monetary policy becomes less effective as a shock absorber. But macroeconomic damnation is not inevitable: in some cases, suitable changes in money and exchange rates can still partially stabilize output, investment and consumption.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 234.

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Date of creation: Oct 2003
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Handle: RePEc:chb:bcchwp:234
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  1. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  2. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  3. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  4. Andrew Crockett & Chairman, 1999. "General discussion : exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 411-422.
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