Controlling Currency Mismatches in Emerging Markets [NOOK Book]

Overview

In most of the currency crises of the 1990s, the largest output falls have occurred in those emerging economies with large currency mismatches, a phenomenon that occurs when assets and liabilities are denominated in different currencies such that net worth is sensitive to changes in the exchange rate. Currency mismatching makes crisis management much more difficult since it constrains the willingness of the monetary authority to reduce interest rates in a recession (for fear of initiating a large fall in the ...

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Controlling Currency Mismatches in Emerging Markets

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Overview

In most of the currency crises of the 1990s, the largest output falls have occurred in those emerging economies with large currency mismatches, a phenomenon that occurs when assets and liabilities are denominated in different currencies such that net worth is sensitive to changes in the exchange rate. Currency mismatching makes crisis management much more difficult since it constrains the willingness of the monetary authority to reduce interest rates in a recession (for fear of initiating a large fall in the currency that would bring with it large-scale insolvencies). The mismatching also produces a "fear of floating" on the part of emerging economies, sometimes inducing them to make currency-regime choices that are not in their own long-term interest.

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Product Details

  • ISBN-13: 9780881324570
  • Publisher: Peterson Institute for International Economics
  • Publication date: 4/15/2004
  • Sold by: Barnes & Noble
  • Format: eBook
  • File size: 3 MB

Table of Contents

Preface ix
Acknowledgments xv
1 Introduction 1
Original Sin Hypothesis 5
Plan of the Book 8
2 Why Currency Mismatches Matter 11
3 Measuring Currency Mismatch: Beyond Original Sin 21
Original Sin: A Misleading Measure 21
Summary 34
4 Aggregate Effective Currency Mismatch 37
New Measure of Aggregate Effective Currency Mismatch 42
Modification of AECM 51
5 Coping with Potential Currency Mismatches 57
6 Role of National Macroeconomic Policies and Currency Regimes 63
Monetary Policy and Inflation 64
Currency Regime 67
Fiscal Policies 69
Debt and Reserve Management Policies 71
7 Role of Institutional Factors and Microeconomic Incentives 77
Bond Markets 79
Prudential Oversight of Financial Institutions 82
Regulation of Banks in Major Lending Centers 85
Regulation of Banks in Borrowing Countries 89
Aggregate Mismatches in the Banking System 97
Regulations of Other Financial Institutions 98
Rules for Nonfinancial Corporations? 102
8 International Solutions to Currency Mismatching? 105
9 Reducing Currency Mismatching: A Domestic Agenda 113
Summary 119
Appendix A Measuring Mismatches: Some Cautionary Notes 123
Appendix B Evolution of the Original Sin Hypothesis 135
References 145
Index 153
Tables
Table 2.1 Proxies for currency mismatches before the Asian crisis, 1995-99 12
Table 2.2 Borrowing by domestic banks from international banks, 1995-2002 13
Table 2.3 Domestic bank credit to the private sector 17
Table 3.1 Measures of original sin by country groupings, simple average 22
Table 3.2 Export openness, 1994-2002 23
Table 3.3 Bond market development, end-2001 26
Table 3.4 Foreign banks' consolidated claims, local and international, 1990-2003 28
Table 3.5 Emerging-market financing, all sectors, 1997-2001 31
Table 4.1 Australia: Foreign-currency exposure by financial sector, end-June 2001 39
Table 4.2 Thailand: Intersectoral asset and liability position, end-December 1996 40
Table 4.3 Net foreign-currency assets, 1994-2002 45
Table 4.4 Foreign-currency share of total debt, 1994-2002 47
Table 4.5 Original AECM estimates, 1994-2002 48
Table 4.6 Modified AECM estimates, 1994-2002 50
Table 4.7 Total debt as a percent of GDP, 1994-2002 52
Table 4.8 Original sin ratio in emerging economies 55
Table 5.1 Foreign exchange turnover 58
Table 5.2 Top 10 countries in bond trading volume, 2001 60
Table 5.3 Domestic debt securities outstanding, 1994-2002 61
Table 6.1 Type of domestic debt at issuance, end-2000 65
Table 6.2 Outstanding government debt by type, end-2001 73
Table 7.1 Guidelines or regulations for currency mismatches in banks 91
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