Conventional and Insidious Macroeconomic Balance-Sheet Crises

Author/Editor: Bas B. Bakker ; Leslie Lipschitz
Publication Date: August 22, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper describes the anatomy of two types of balance-sheet macroeconomic crises. Conventional balance-sheet crises are triggered by external imbalances and balance sheet vulnerabilities. They typically occur after capital inflows have led to a substantial build up of foreign currency exposure. Insidious crises are triggered by internal imbalances and balance sheet vulnerabilities. They occur in high-growth economies when an initially equilibrating shift in relative prices and resources and credit in favor of the nontraded sector overshoots equilibrium. The paper argues that policymakers are now better able to forestall conventional crises, but they are much less capable of early detection and avoidance of insidious crises.
Series: Working Paper No. 14/160
Subject(s): Fiscal imbalances | Developed countries | Emerging markets | Capital account | Balance sheets | Financial crises

Publication Date: August 22, 2014
ISBN/ISSN: 9781498389044/1018-5941 Format: Paper
Stock No: WPIEA2014160 Pages: 40
US$18.00 (Academic Rate:
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