Comments on financial crises and contagion
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 ...
The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdis
Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992-3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewise.
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 ...
Speculative attacks on pegged exchange rates: an empirical exploration with special reference to the European Monetary System
This paper presents an empirical analysis of speculative attacks on pegged exchange rates in 22 countries between 1967 and 1992. We define speculative attacks or crises as large movements in exchange rates, interest rates, and international reserves. We develop stylized facts concerning the univariate behavior of a variety of macroeconomic variables, comparing crises with periods of tranquility. For ERM observations we cannot reject the null hypothesis that there are few significant differences in the behavior of key macroeconomic variables between crises and non-crisis periods. This null ...
Stability or upheaval? The currency composition of international reserves in the long run
We analyze how the role of different national currencies as international reserves was affected by the shift from fixed to flexible exchange rates. We extend data on the currency composition of foreign reserves backward and forward to investigate whether there was a shift in the determinants of the currency composition of international reserves around the breakdown of Bretton Woods. We find that inertia and policy-credibility effects in international reserve currency choice have become stronger post-Bretton Woods, while network effects appear to have weakened. We show that negative policy ...
Doctrinal determinants, domestic and international of Federal Reserve policy, 1914-1933
This paper describes the doctrinal foundations of Federal Reserve policy from the establishment of the institution through the early 1930s, focusing on the role of international factors in those doctrines and conceptions. International considerations were at most part of the constellation of factors shaping the Federal Reserve?s outlook and policies even in the high gold standard era that ended in 1933. However, neither was the influence of international factors absent, much less negligible. Nor were the Fed?s policies without consequences for the rest of the world. Having described the ...
Trade deficits in the long run
Asia’s role in the post-crisis global economy
Closing remarks -- Asia's role in the post-crisis global economy : a conference (2011 : November 29-30)