The Balance Between Adjustment and Financing
Author: Jeffrey A. Frankel
Publisher:
Published: 2003
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKWhen inflows change to outflows, a country often has less than a year in which to take steps to adjust. Adjustment is via some combination of expenditure-switching policies, such as devaluation, and expenditure-reducing policies, such as higher interest rates. Recent experience suggests that if the country chooses to finance rather than adjust, then it is likely to find that the crisis is much worse when it comes. Specifically, the country may then find that there does not exist any combination of policies that preserves internal balance -- i.e., avoids a recession -- while simultaneously meeting the external financing constraint.