Must Original Sin Cause Macroeconomic Damnation?
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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- Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000.
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7840, National Bureau of Economic Research, Inc.
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