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Working Paper
Crisis resolution: next steps
At the April 2003 meeting of the International Monetary and Financial Committees, it was decided to further encourage the contractual approach to smoothing the process of sovereign debt restructuring by encouraging the more widespread use of collective action clauses (CACs) in international bonds. This decision was shaped partly by Mexico's successful launch of a bond subject to New York law but featuring CACs, and by subsequent issues with similar provisions from other emerging market countries. This paper reviews the developments leading up to that event, its implications, and prospects ...
Working Paper
Deposit insurance, regulatory forbearance and economic growth: implications for the Japanese banking crisis
An endogenous growth model with financial intermediation is used to show how public deposit insurance and weak prudential regulation can lead to banking crises and permanent declines in economic growth. The impact of regulatory forbearance on investment, saving and asset price dynamics under perfect foresight are derived in the model. The assumptions of the theoretical model are based on essential features of the Japanese financial system and its regulation. The model demonstrates how banking and growth crises can evolve under perfect foresight. The dynamics for economic aggregates and asset ...
Journal Article
Resolving sovereign debt crises with collective action clauses
Working Paper
Speculative capital inflows and exchange rate targeting in the Pacific Basin
This paper studies the process of capital inflow management and speculative inflows for countries pursuing the joint goals of monetary and exchange rate management. We introduce a sticky-price model with imperfect asset substitutability in which a central bank engages in costly sterilization to mitigate the influence of capital inflows on its policy targets. The costs of sterilization, often referred to as "quasi-fiscal costs" in the literature, reflect the loss experienced by the central bank by holding foreign securities whose nominal yields are inferior to those paid on domestic bonds. ...
Working Paper
The IMF in a world of private capital markets
The IMF attempts to stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly-available information dominates. But spreads ...
Working Paper
Monetary union and macroeconomic stabilization
Journal Article
Capital flight, external debt, and domestic policies
The international debt crisis of 1982 revealed that unrecorded private capital outflows from developing countries occurred simultaneously with borrowing from international commercial banks. Current interest in capital flight has been generated by the possibility that the resurgence of private capital inflows to these countries may be limited to the return of flight capital. A simple public finance model shows that simultaneous capital outflows and inflows can be explained as the result of private international arbitrage of domestic policies. The paper discusses the welfare consequences of ...
Working Paper
Sovereign debt, volatility, and insurance
External debt increases the vulnerability of indebted emerging market economies to macroeconomic volatility and financial crises. Capital account reversals often lead sovereign debt repayment crises that are only resolved after prolonged and difficult debt restructuring. Foreign indebtedness exacerbates domestic financial distress in crisis, increasing both the incidence and severity of emerging market crises. These outcomes contrast with the presumption that access to international capital markets should help countries to smooth domestic consumption and investment against macroeconomic ...
