nomic activity. The paper highlights how the interaction of domestic informational frictions, perfect capital mobility, and foreign interest rates can combine to provoke a sudden depreciation of the exchange rate and a prolonged decline in output. In particular, theauthorsdescribeconditionsunderwhichtwodifferentequilibriaexist. One has a high level of outputand a minorcostly-state-veri?cationproblem, and the other equilibrium has a higher level of output and a severe costly-state-veri?cation problem. In addition, the authors show how their model can successfully simulate a...