RESEARCH

Working Papers

• The Exchange Rate and Fundamentals: A Factor Analysis Approach (2007) (pdf)

(Job Market Paper)

I provide a test of present-value models of the exchange rate. My methodology consists of using dynamic factor analysis to obtain a better identification of innovations to macroeconomic fundamentals. I estimate standard VAR and Factor-Augmented VAR models for two small open economies, Canada and Mexico, and compare the responses of the exchange rate to news about macroeconomic fundamentals. My results offer more support for the Taylor-rule model than for the monetary model of the exchange rate. I also find that the use of dynamic factor analysis helps to obtain exchange rate responses consistent with uncovered interest parity, and significantly improves the in-sample and out-of-sample fit of exchange rate models.

• Sudden Stops and Currency Crises in an Economy with Borrowing Constraints (2005) (pdf)

In recent years a third generation of currency crises models emphasizing financial imperfections has emerged after the challenge posed by the Asian crisis, which could not be explained by previously existing models. This paper adds to the literature by showing that a constraint on international borrowing can generate self-fulfilling crises. The model is consistent with the stylized facts, specially regarding the concurrence of sudden stops and currency crises in emerging markets.

• An Analysis of Optimal Monetary Policy under Inflation Inertia (2004) (pdf)

This paper presents a model with inflation inertia and analyses its monetray policy implications using the toolkit created by Gerali and Lippi (2003). Along with the construction and analysis of my model, I discuss previous related work by Gali and Gertler (1999) and by Steinsson (2003), as well as models with price indexation.

Work in Progress

• Non-Traded Goods and Real Exchange Rate Volatility

• International Investors’ Risk Appetite and Global Financial Markets (with B. Gonzalez-Hermosillo)

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