In this paper we are concerned with the existence of a dynamic arbitrage gap that evolves out of an adjustment process for disequilibrium prices, within a complex dynamics framework which takes into account the market microstructure and transactions costs. Although this gap exhibits non linear and chaotic behavior, it doesn’t preclude effective arbitrage transactions from taking place in real markets. Moreover, it may explain much better those factors which usually impede actual perfect arbitrage.

It is an honor for me to be asked to present the closing address at this conference, which celebrates 20 years of achievement by those involved in CEMA's research and teaching activities. Starting from a tabula rasa, СЕМА has become a leading contributor in both these dimensions, and has solidified its position in the vanguard of the great campaign to bring good economics to Latin America.

 This paper considers the financing of investment in the presence of asymmetric information between the “insiders” and the “outsiders” of the firms in a small open economy. It establishes a well-defined capital structure for the economy as a whole with the following features: low- productivity firms rely on the equity market to finance investment at a relatively low level; medium-productivity firms do not invest at all; and high-productivity firms rely on the debt market to finance investment at a relatively high level.

In the presence of asymmetric information, the stage at which financing decisions are made about investment projects in a small open economy is crucial for the composition of international capital inflows as well as for the efficiency of channeling savings into investment.  This paper compares the implications of two extreme cases regarding the information possessed by the firms at their financing stage for whether inflows of foreign debt may crowd out foreign equity or the other way round.  The scope for corrective tax policies is examined.

In this paper, we focus on the tails of the unconditional distribution of latin American emerging markets stock returns. We explore their implications for portfolio diversification according to the safety first principle,  first proposed by Roy (1952). We find that the Latin American emerging markets have significantly fatter tails than industrial markets, especially, the lower tail of the distribution. We consider the implication of the safety first principle for a U.S. investor who creates a diversified portfolio using Latin America stock markets. We find that a U.S.

La hipótesis de racionalidad es central en teoría económica actual, y sirve de hilo unificador en la historia del análisis económico. Se ha extendido a otras ciencias sociales bajo el enfoque de decisión racional. Se puede distinguir entre racionalidad en sentido limitado (maximización de beneficio), y racionalidad en sentido amplio (optimización). El significado de la racionalidad individual se reexamina explorando las implicancias psicológicas de la racionalidad: la racionalidad se puede ver como inteligencia analítica más madurez emocional.

This paper presents a rational political budget cycle model for the open economy, in which devaluations are delayed in the run-up to elections, in order to increase the electoral chances of the party in office. By concentrating on the closed economy, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. We introduce voter uncertainty in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent. They also ignore the degree to which the incumbent is opportunistic, i.e.

This empirical research analyzes the link between environmental agreements and the level of pollution in transnational waterbodies. It attempts to capture if environmental agreements have any impact on the actual level of pollution observed in transnational waterbodies and what are the determinants of the existence of such agreements.

In this paper we introduce a Cash Flow Model with Float so as to overcome apparent shortcomings that pervade the Standard Cash Flow Model. We deploy the complex structure the float exhibits and this allows not only for strategic financial decision making but a much more sensible use of sources and applications of expected future cash flows, as well. Furthermore, it provides with a method for building up floats. It is a distinguishing feature in this model  that uncovers agency problems and costs. Besides, it gives grounds for a quantitative approach to free cash flows analysis.

Este ensayo fue escrito originalmente en 1987, como un panfleto a favor del equilibrio fiscal. La situación económica argentina era entonces definitivamente distinta y peor. En esta oportunidad, he agregado un conjunto de estimaciones econométricas sobre las relaciones entre el déficit fiscal, la incertidumbre macroeconómica y el crecimiento en el período 1915-1997, y he incluído una estimación del costo de bienestar de la incertidumbre.