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Conference Paper
Crowding out redefined: the role of reserve accumulation
It is well understood that investment serves as a shock absorber at the time of crisis. The duration of the drag on investment, however, is perplexing. For the nine Asian economies we focus on in this study, average investment/GDP is about 6 percentage points lower during 1998-2012 than its average level in the decade before the crisis; if China and India are excluded, the estimated decline exceeds 9 percent. We document how in the wake of crisis home bias in finance usually increases markedly as public and private sectors look inward when external financing becomes prohibitively costly, ...
Working Paper
The twin crises: the causes of banking and balance-of-payments problems
In the wake of the ERM and Mexican currency crises, the subject of balance-of-payments crises has come to the forefront of academic and policy discussions. This paper focuses on the potential links between banking and balance-of-payments crises. We examine these episodes for a large number of countries and find that knowing that there are banking problems helps in predicting balance-of-payments crises, but the converse is not true; financial liberalization usually predates banking crises, indeed, it helps predict them. Rather than a causal relationship from banking to balance-of-payments ...
Working Paper
Capital controls during financial crises: the case of Malaysia and Thailand
This study examines the impact capital controls had in Malaysia (1998-1999) and Thailand (1997). We aim to assess the extent to which the capital controls were effective in delivering the outcomes that motivated their imposition. We conclude that in Thailand the controls did not deliver much of what was intended--although, one does not observe the counterfactual. By contrast, in the case of Malaysia the controls did align closely with the priors of what controls are intended to achieve: greater interest rate and exchange rate stability and more policy autonomy.
Conference Paper
After the fall
Working Paper
When in peril, retrench: testing the portfolio channel of contagion
One plausible mechanism through which financial market shocks may propagate across countries is through the effect of past gains and losses on investors? risk aversion. The paper first presents a simple model examining how heterogeneous changes in investors? risk aversion affects portfolio decisions and stock prices. Second, the paper shows empirically that, when funds? returns are below average, they adjust their holdings toward the average (or benchmark) portfolio. In other words, they tend to sell the assets of countries in which they were ?overweight?, increasing their exposure to ...
Working Paper
Capital controls: myth and reality, a portfolio balance approach to capital controls
The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology--furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings ...
Conference Paper
When in peril, retrench: testing the portfolio channel of contagion
It has frequently been argued that portfolio adjustments by international investors may transmit financial shocks across markets and borders. This notion, however, has not yet been examined with microeconomic data. One plausible mechanism through which shocks may propagate is through the effect of past gains and losses on investors? risk aversion. We test this hypothesis using a unique data set of the monthly country asset allocation of individual emerging market funds. We first present a simple model that analyzes the effect of heterogeneous changes in investors? risk aversion on portfolio ...