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Working Papers N° 234: Must Original Sin Cause Macroeconomic Damnation?

Autor: Luis Felipe Céspedes , Roberto Chang


Description

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.

Working Papers N° 234: Must Original Sin Cause Macroeconomic Damnation?
 
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