Current Account Reversals and Currency Crises
Current Account Reversals and Currency Crises

Author: Mr.Gian Milesi-Ferretti

Publisher: International Monetary Fund

Published: 1998-06-01

Total Pages: 45

ISBN-13: 1451952422

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This paper studies large reductions in current account deficits and exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. Both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade, are found to trigger reversals and currency crises. The two types of events are, however, distinct; an exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversals there is no systematic evidence of a growth slowdown.

Financial Openness, Sudden Stops and Current Account Reversals
Financial Openness, Sudden Stops and Current Account Reversals

Author: Sebastian Edwards

Publisher:

Published: 2004

Total Pages: 32

ISBN-13:

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"In this paper I use a panel data set to investigate the mechanics of sudden stops of capital inflows and current account reversals. I am particularly interested in four questions: (a) What is the relationship between sudden stops and current account reversals? (b) To what extent does financial openness affect the probability of a country being subject to a current account reversal? In other words, do restrictions on capital mobility reduce the probability of such occurrences? (C) Does openness n both trade openness and financial openness n play a role in determining the effect of current account reversals on economic performance (i.e. GDP growth)? And, (d) does the exchange rate regime affect the intensity with which reversals affect real activity? The empirical analysis shows that sudden stops and current account reversals have been closely related. The econometric analysis suggests that restricting capital mobility does not reduce the probability of experiencing a reversal. Current account reversals, in turn, have had a negative effect on real growth that goes beyond their direct effect on investment. The regression analysis indicates that the negative effects of current account reversals on growth will depend on the country's degree of trade openness: More open countries will suffer less n in terms of lower growth relative to trend n than countries with a lower degree of trade openness. On the other hand, the degree of financial openness does not appear to be related to the intensity with which reversals affect real economic performance. The empirical analysis also suggests that countries with more flexible exchange rate regimes are able to accommodate better shocks stemming from a reversal than countries with more rigid exchange rate regimes"--NBER website

G7 Current Account Imbalances
G7 Current Account Imbalances

Author: Richard H. Clarida

Publisher: University of Chicago Press

Published: 2007-11-01

Total Pages: 518

ISBN-13: 0226107280

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The current account deficit of the United States is more than six percent of its gross domestic product—an all-time high. And the rest of the world, including other G7 countries such as Japan and Germany, must collectively run current account surpluses to finance this deficit. How long can such unevenness between imports and exports be sustained, and what form might their eventual reconciliation take? Putting forth scenarios ranging from a gradual correction to a crash landing for the dollar, G7 Current Account Imbalances brings together economists from around the globe to consider the origins, status, and future of those disparities. An esteemed group of collaborators here examines the role of the bursting of the dot-com bubble, the history of previous episodes of current account adjustments, and the possibility of the Euro surpassing the dollar as the leading international reserve currency. Though there are areas of broad agreement—that the imbalances will ultimately decline and that currency revaluations will be part of the solution—many areas of contention remain regarding both the dangers of imbalances and the possible forms of adjustment. This volume will be of tremendous value to economists, politicians, and business leaders alike as they look to the future of the G7 economies.

Capital Flows at Risk: Taming the Ebbs and Flows
Capital Flows at Risk: Taming the Ebbs and Flows

Author: Mr.R. G Gelos

Publisher: International Monetary Fund

Published: 2019-12-20

Total Pages: 44

ISBN-13: 1513522906

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The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new framework to answer critical policy questions: What policies and policy frameworks are most effective in dampening sharp capital flow movements in response to global shocks? What are the near- versus medium-term trade-offs of different policies? We tackle these questions using a quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on current domestic structural characteristics, policies, and global financial conditions. This new approach allows policymakers to quantify capital flows risks and evaluate policy tools to mitigate them, thus building the foundation of a risk management framework for capital flows.

Other People's Money
Other People's Money

Author: Barry Eichengreen

Publisher: University of Chicago Press

Published: 2010-04-15

Total Pages: 306

ISBN-13: 0226194574

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Recent crises in emerging markets have been heavily driven by balance-sheet or net-worth effects. Episodes in countries as far-flung as Indonesia and Argentina have shown that exchange rate adjustments that would normally help to restore balance can be destabilizing, even catastrophic, for countries whose debts are denominated in foreign currencies. Many economists instinctually assume that developing countries allow their foreign debts to be denominated in dollars, yen, or euros because they simply don't know better. Presenting evidence that even emerging markets with strong policies and institutions experience this problem, Other People's Money recognizes that the situation must be attributed to more than ignorance. Instead, the contributors suggest that the problem is linked to the operation of international financial markets, which prevent countries from borrowing in their own currencies. A comprehensive analysis of the sources of this problem and its consequences, Other People's Money takes the study one step further, proposing a solution that would involve having the World Bank and regional development banks themselves borrow and lend in emerging market currencies.

Preventing Currency Crises in Emerging Markets
Preventing Currency Crises in Emerging Markets

Author: Sebastian Edwards

Publisher: University of Chicago Press

Published: 2002-11-15

Total Pages: 782

ISBN-13: 9780226184944

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Economists and policymakers are still trying to understand the lessons recent financial crises in Asia and other emerging market countries hold for the future of the global financial system. In this timely and important volume, distinguished academics, officials in multilateral organizations, and public and private sector economists explore the causes of and effective policy responses to international currency crises. Topics covered include exchange rate regimes, contagion (transmission of currency crises across countries), the current account of the balance of payments, the role of private sector investors and of speculators, the reaction of the official sector (including the multilaterals), capital controls, bank supervision and weaknesses, and the roles of cronyism, corruption, and large players (including hedge funds). Ably balancing detailed case studies, cross-country comparisons, and theoretical concerns, this book will make a major contribution to ongoing efforts to understand and prevent international currency crises.

Managing Capital Flows
Managing Capital Flows

Author: Masahiro Kawai

Publisher: Edward Elgar Publishing

Published: 2010-01-01

Total Pages: 465

ISBN-13: 184980687X

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Managing Capital Flows provides analyses that can help policymakers develop a framework for managing capital flows that is consistent with prudent macroeconomic and financial sector stability. While capital inflows can provide emerging market economies with invaluable benefits in pursuing economic development and growth, they can also pose serious policy challenges for macroeconomic management and financial sector supervision. The expert contributors cover a wide range of issues related to managing capital flows and analyze the experience of emerging Asian economies in dealing with surges in capital inflows. They also discuss possible policy measures to manage capital flows while remaining consistent with the goals of macroeconomic and financial sector stability. Building on this analysis, the book presents options for workable national policies and regional policy cooperation, particularly in exchange rate management. Containing chapters that bring in international experiences relevant to Asia and other emerging market economies, this insightful book will appeal to policymakers in governments and financial institutions, as well as public and private finance experts. It will also be of great interest to advanced students and academic researchers in finance.

Capital Account Liberalization
Capital Account Liberalization

Author: Mr.Giovanni Dell'Ariccia

Publisher: International Monetary Fund

Published: 1998-09-30

Total Pages: 74

ISBN-13: 9781557757777

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Capital account liberalization - orderly, properly sequence, and befitting the individual circumstances of countries- is an inevitable step for all countries wishing to realize the benefits of the globalized economy. This paper reviews the theories behind capital account liberalization and examines the dangers associated with free capital flows. The authors conclude that the dangers can be limited through a combination of sound macroeconomic and prudential policies.

Global Waves of Debt
Global Waves of Debt

Author: M. Ayhan Kose

Publisher: World Bank Publications

Published: 2021-03-03

Total Pages: 403

ISBN-13: 1464815453

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The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Do Workers' Remittances Reduce the Probability of Current Account Reversals?
Do Workers' Remittances Reduce the Probability of Current Account Reversals?

Author: Matteo Bugamelli

Publisher: World Bank Publications

Published: 2005

Total Pages: 53

ISBN-13:

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The authors combine the literature on financial crises in emerging markets and developing economies with that on international migrations by investigating whether the increasingly large flows of workers' remittances can help reduce the probability of current account reversals. The rationale for this stands in the great stability and low cyclicality of remittances as compared with other private capital flows: these properties, combined with the fact that remittances are cheap inflows of foreign currencies, might reduce the probability that foreign investors suddenly flee out of emerging markets and developing economies and trigger a dramatic current account adjustment. The authors find that remittances can have such a beneficial effect. In particular, they show that a high level of remittances, as a ratio of GDP, makes the relationship between a decreasing stock of international reserves (over GDP) and a higher probability of current account crises less stringent. The same occurs, though less neatly, for the positive relationship between an increasing stock of external debt (over GDP) and the probability of current account reversals. The results point also to a threshold effect of remittances: the mechanisms just described are, in fact, much stronger when remittances are above 3 percent of GDP.