## _wp13259

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### I. INTRODUCTION
- Research question: impact of a very large global crisis (second only to the Great Depression) on emerging market economies (EMEs), with focus on Latin America.
- Main thesis: The global financial crisis was “bad, but disaster, no” for EMEs — overall damage limited and recovery strong.
- Approach: Complement econometric panel regressions with detailed case analysis to capture institutional nuances and policy heterogeneity.
- Country coverage note: Primary Latin America sample includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela (occasionally excluding Venezuela and Uruguay when data unavailable). Asia includes Korean Rep., India, Indonesia, Malaysia, the Philippines, and Thailand. Emerging Europe includes Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania.

### II. THE RESILIENCE OF EMERGING MARKET ECONOMIES
- Summary conclusion: EMEs, particularly Latin American economies, showed notable resilience to the global financial crisis—most experienced recessions or severe slowdowns but with milder effects than historical precedents and strong recoveries.
- Key drivers of resilience:
  - Good initial macroeconomic conditions that enabled large monetary and fiscal stimulus.
  - Exchange rate flexibility that allowed sharp depreciations, reduced incentives for speculative attacks, and diminished pass-through to inflation.
  - Favorable external conditions, including strong demand from developing countries (notably China) and high commodity prices benefiting primary commodity exporters in Latin America.
  - Strong, well regulated, and fairly simple financial systems capable of accommodating exchange rate depreciation without collapse and resuming lending quickly.
  - High levels of international reserves that deterred attacks on currencies, lowered the probability of sudden stops, and provided a cushion against lack of foreign financing.

### Macroeconomic policy space and performance
- Fiscal position:
  - Fiscal accounts were generally healthy pre-crisis; levels of public debt were relatively low and had declined in the years prior to the crisis.
  - Argentina and Brazil have debts close to 60 percent of GDP.
  - Other Latin American countries have debt levels below those of other emerging markets and well below advanced economies.
  - Countries that had windfall gains from high terms of trade saved and had resources to spend during the downturn; others could borrow to finance fiscal expansions.
- Monetary policy:
  - Control of inflation created room for monetary loosening despite commodity-driven inflation pressures during the buildup to the crisis.
  - The response of inflation to exchange rate developments was more muted than in previous episodes, partly due to exchange rate flexibility reducing pass-through.
  - Countries such as Brazil, Chile, Colombia, Mexico and Peru cut interest rates to historical lows during the crisis; although rates were later raised in most cases, they had not returned to pre-crisis levels at the time of writing.
  - Many Latin American countries use flexible inflation targeting; evidence cited indicates inflation targeting regimes had a positive effect on post-crisis economic performance since August 2008.
- Contrast with historical policy responses:
  - Historically, Latin American responses to external recessions were procyclical (fiscal tightening and monetary tightening) because of limited fiscal space and fear of depreciation.
  - During the global financial crisis, by contrast, countries pursued expansionary fiscal and monetary policies enabled by better initial conditions and financial resilience.

### Exchange rate flexibility and financial stability
- Exchange rate behavior:
  - At the crisis peak, currencies in Latin America depreciated sharply; in a period of few months, depreciations were about 60 percent.
  - Similar large depreciations occurred in Asia (example: South Korea 68 in Figure 4 bracketed depreciation).
  - Exchange rate adjustment was driven by fundamentals and by a flight to safety; subsequent stronger-than-expected EME performance led to currency appreciation.
  - Rapid adjustment reduced incentives to speculate against further weakening.
- Financial sector:
  - Strong, well-regulated, and relatively simple financial systems prevented exchange rate depreciation from triggering financial collapse.
  - Financial systems were able to resume lending once conditions improved.
  - Development of foreign exchange forward markets accompanied floating exchange rates, supporting hedging and reducing implicit insurance from fearing currency movements.

### External conditions (“Good luck”)
- Terms of trade and external demand:
  - Rapid growth in the developing world, particularly China, raised demand for exports from developing countries.
  - Several Latin American countries, as primary commodity exporters, enjoyed significant terms of trade gains during the 2000s commodity boom.
  - Asia did not experience similar terms of trade gains due to broad industrial production bases.

### Role of international reserves
- High reserve levels are identified as one of the few explanatory variables consistently relevant to EME performance during the crisis.
- Reserves functioned as:
  - A deterrent to currency attacks and fears of foreign insolvency,
  - A reducer of the probability of sudden stops,
  - A cushion against potential lack of foreign financing (though not massively used).
- Empirical notes:
  - Countries with larger volumes of reserves experienced smaller increases in their CDS spreads during the crisis, reducing financing-cost impacts (cited studies).
  - Brazil, Korea and Mexico intervened during difficult moments and may have benefited from credibility imparted by large reserves holdings.
- Alternatives to reserves:
  - Commodity hedges for commodity exporters.
  - Multilateral contingent credit lines (e.g., IMF’s Flexible Credit Line—FCL).
  - Bilateral currency swap lines (more available to relatively large economies).
- Trade-off highlighted: reserve accumulation provides insurance but entails carry costs and can limit space for further accumulation.

### Terms-of-trade shock and region-wide scenario (IDB 2012 simulation)
- Shock simulated: deepening of the Eurozone crisis and a slowdown in China resulting in a decline of 30 percent in commodity prices.
- Simulation outcomes:
  - Chinese growth falling 3 percentage points.
  - Recessions in the U.S. and Europe.
  - Decline in output in Latin America of 0.6 percent, "somewhat smaller, but more persistent, than that of the global financial crisis."
- Key insight: the region is vulnerable to a global slowdown and a fall in commodity prices, but would not suffer a major collapse as in past episodes; differentiated country impacts depend on dependence of government budgets on terms of trade and residual fiscal space after the crisis.

### Resilient financial system: design features and evidence
- Regulatory emphasis: solvency and liquidity of institutions; macroprudential rules complement microprudential regulation to limit systemic risk.
- Sources of systemic risk:
  - Time-series dimension: procyclicality of financial activities.
  - Cross-section dimension: SIFIs—systemically important financial institutions—whose risks can contaminate the whole system.
- Features supporting resilience in Latin American banking systems:
  - Relatively high regulatory capital and low leverage: all countries had regulatory capital above the 8 percent required by Basle II.
  - Chile appears to have the largest leverage ratio in the region.
  - Limits on complex or risky instruments: Chile’s restrictions on bond holdings and derivatives; Brazil and Mexico limited derivatives use in banking.
  - Credit dynamics: sharp contraction of credit at the crisis peak, followed by resumption as economies recovered.
  - Financial deepness: measured by private banking credit to GDP, Latin America ranks relatively low (except Chile); increase during the 2000s was milder than in emerging Europe or advanced economies.
- Cross-border exposure and foreign bank presence:
  - Cross-border claims fell more in Asia than in Latin America during the crisis: Korea and Malaysia declines in 2008.IV were 6.7 and 5 percent of GDP, respectively; maximum decline in Latin America was in Chile, with a fall of 3 percent of GDP.
  - Latin America exposed mainly to Spanish banks (Santander and BBVA).
  - Predominant use of subsidiaries by foreign banks in Latin America—subsidiarization induces local funding, separate capital and boards, and can limit contagion.
  - Rationale for resilience (Kamil and Rai, 2010): global banks’ credit mostly channeled in domestic currency; foreign banks operate as local subsidiaries funded mostly with domestic deposits; combined features lower vulnerability.

### Macroprudential instruments used and limits
- Reserve requirements:
  - Widely used to reduce credit expansion by increasing borrowing costs.
  - Brazil, Colombia and Peru used changes in reserve requirements recently to stem credit booms.
  - Tovar et al. (2012): effects are moderate and transitory; side effects include fueling search for alternative funding, growth of shadow banking.
- Measures to address currency mismatches:
  - Regulations on currency mismatches across surveyed Latin American countries: quantitative limits, inclusion of exchange rate exposure in credit risk, capital / provisioning consequences.
  - Chile: more provisions to foreign currency lending when borrowers have most income in domestic currency; forward-looking provisions being studied and implemented regionally.
  - Peru and Uruguay: additional capital requirements applied to foreign currency lending to un-hedge borrowers.
- Disclosure and corporate currency exposure:
  - Crisis highlighted need for better disclosure of corporations' effective currency exposure, particularly when complex derivatives are involved.
- Perimeter risk:
  - Stricter bank regulation can push intermediation into unregulated shadow banking—ongoing tension on scope of regulation.

### Capital controls: use, design, and mixed evidence
- Capital controls have been used as macroprudential tools with dual aims: limiting exchange rate appreciation (net flows) and fostering financial stability (gross flows).
- Recent country practices and measures:
  - Korea (August 2011): capital levy on non-core liabilities—banks pay a levy of 20 basis points for foreign-currency-denominated liabilities of less than 12-month maturity.
  - Peru: similar levy on foreign borrowing and fees for sale of Central Bank of Peru bonds.
  - Brazil: reserve requirements on foreign borrowing and a tax on transactions of fixed-income instruments and equity.
  - Colombia: unremunerated reserve requirement during 2007-2008 (similar to Chile in the 1990s).
- Evidence: effects of capital controls on financial stability and exchange rates are inconclusive; preservation of financial stability occurred in countries that did and did not apply capital controls; exchange rates behaved similarly regardless of controls.
- Cautionary comments:
  - Capital controls may be used to fight other distortions encouraging capital inflows (e.g., very high interest rates).
  - Chile weathered major crises without controls; Brazil's recent experience may reflect interest-rate-driven inflows rather than a need for controls.

### Policy-relevant findings and implications
- Preconditions and policy space:
  - Low public debt and healthy fiscal accounts before a shock enable countercyclical fiscal response.
  - Credible inflation control provides room for aggressive monetary easing when needed.
  - Flexible exchange rates can absorb external shocks and reduce real economic costs.
  - Simple, well-regulated banking systems enable monetary and fiscal measures to translate into real support.
  - Sizable international reserves complement other policy tools in reducing the chance and severity of balance-of-payments crises.
- Regulatory stance and institutional arrangements:
  - Regulate complexity proportionately: emerging-market banks are simpler and regulation should follow institutional complexity.
  - Create financial stability boards to coordinate agencies; boards must have clear mandates and avoid overlap.
  - Central banks should play a critical role in macroprudential design and financial stability and should have or be granted independence to perform effectively.
- Perimeter, competition, and simplicity:
  - Avoid wholesale overhauls; focus first on whether to allow financial innovation and then on appropriate regulation if allowed.
  - Competition policies should be coordinated with financial regulators to avoid promoting competition at the cost of increased vulnerabilities.
  - Simplicity is valuable where feasible; overly complex rules are not necessarily robust.
- Core policy priorities to sustain recovery and progress:
  - Persevere in fiscal responsibility.
  - Maintain inflation control.
  - Preserve flexible exchange rates.
  - Sustain robust prudential regulation of the financial system.

*Source: _wp13259 - 1.   Gross Public Debt 2008 (PDF chapter/section).*

### 1.   Gross Public Debt 2008 ............................................................................................

### _wp13259 - 1.   Gross Public Debt 2008 ............................................................................................

### I. INTRODUCTION
- Research question: impact of a very large global crisis (second only to the Great Depression) on emerging market economies (EMEs), with focus on Latin America.
- Main thesis: The global financial crisis was “bad, but disaster, no” for EMEs — overall damage limited and recovery strong.
- Approach: Complement econometric panel regressions with detailed case analysis to capture institutional nuances and policy heterogeneity.
- Country coverage note: Primary Latin America sample includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela (occasionally excluding Venezuela and Uruguay when data unavailable). Asia includes Korean Rep., India, Indonesia, Malaysia, the Philippines, and Thailand. Emerging Europe includes Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania.

### II. THE RESILIENCE OF EMERGING MARKET ECONOMIES
- Summary conclusion: EMEs, particularly Latin American economies, showed notable resilience to the global financial crisis—most experienced recessions or severe slowdowns but with milder effects than historical precedents and strong recoveries.

Key factors identified as driving resilience:
- Good initial macroeconomic conditions that enabled large monetary and fiscal stimulus.
- Exchange rate flexibility that allowed sharp depreciations, reduced incentives for speculative attacks, and diminished pass-through to inflation.
- Favorable external conditions (“good luck”), including strong demand from developing countries (notably China) and high commodity prices benefitting primary commodity exporters in Latin America.
- Strong, well regulated, and fairly simple financial systems capable of accommodating exchange rate depreciation without collapse and resuming lending quickly.
- High levels of international reserves that deterred attacks on currencies, lowered the probability of sudden stops, and provided a cushion against lack of foreign financing.

### Macroeconomic policy space and performance
- Fiscal position:
  - Fiscal accounts were generally healthy pre-crisis; levels of public debt were relatively low and had declined in the years prior to the crisis.
  - Argentina and Brazil have debts close to 60 percent of GDP.
  - Other Latin American countries have debt levels below those of other emerging markets and well below advanced economies.
  - Countries that had windfall gains from high terms of trade saved and had resources to spend during the downturn; others could borrow to finance fiscal expansions.

- Monetary policy:
  - Control of inflation created room for monetary loosening despite commodity-driven inflation pressures during the buildup to the crisis.
  - The response of inflation to exchange rate developments was more muted than in previous episodes, partly due to exchange rate flexibility reducing pass-through.
  - Countries such as Brazil, Chile, Colombia, Mexico and Peru cut interest rates to historical lows during the crisis; although rates were later raised in most cases, they had not returned to pre-crisis levels at the time of writing.
  - Many Latin American countries use flexible inflation targeting; evidence cited indicates inflation targeting regimes had a positive effect on post-crisis economic performance since August 2008.

- Contrast with historical policy responses:
  - Historically, Latin American responses to external recessions were procyclical (fiscal tightening and monetary tightening) because of limited fiscal space and fear of depreciation.
  - In prior episodes monetary policy was often tightened to defend exchange rate parity, inducing high domestic interest rates and exacerbating downturns.
  - During the global financial crisis, by contrast, countries pursued expansionary fiscal and monetary policies enabled by better initial conditions and financial resilience.

### Exchange rate flexibility and financial stability
- Exchange rate behavior:
  - At the crisis peak, currencies in Latin America depreciated sharply; in a period of few months, depreciations were about 60 percent.
  - Similar large depreciations occurred in Asia.
  - Exchange rate adjustment was driven by fundamentals and by a flight to safety; subsequent stronger-than-expected EME performance led to currency appreciation.
  - Rapid adjustment reduced incentives to speculate against further weakening.

- Financial sector:
  - Strong, well-regulated, and relatively simple financial systems prevented exchange rate depreciation from triggering financial collapse.
  - Financial systems were able to resume lending once conditions improved.
  - The development of foreign exchange forward markets accompanied the period of floating exchange rates, supporting hedging and reducing implicit insurance from fearing currency movements.

### External conditions (“Good luck”)
- Terms of trade and external demand:
  - Rapid growth in the developing world, particularly China, raised demand for exports from developing countries.
  - Several Latin American countries, as primary commodity exporters, enjoyed significant terms of trade gains during the 2000s commodity boom.
  - Asia did not experience similar terms of trade gains due to broad industrial production bases.

### Role of international reserves
- High reserve levels are identified as one of the few explanatory variables consistently relevant to EME performance during the crisis.
- Reserves functioned as:
  - A deterrent to currency attacks and fears of foreign insolvency,
  - A reducer of the probability of sudden stops,
  - A cushion against potential lack of foreign financing (though not massively used).

### Policy-relevant findings and implications
- Preconditions matter: Low public debt and healthy fiscal accounts before a shock enable countercyclical fiscal response.
- Inflation control matters: Credible inflation control provides space for aggressive monetary easing when needed.
- Exchange rate flexibility is a protective mechanism: Flexible exchange rates can absorb external shocks and reduce real economic costs.
- Financial system soundness is critical: Simple, well-regulated banking systems enable monetary and fiscal measures to translate into real support.
- Reserve accumulation provides crisis insurance: Sizable international reserves complement other policy tools in reducing the chance and severity of balance-of-payments crises.

*Source: _wp13259 - 1.   Gross Public Debt 2008 (PDF chapter/section).*

### 2005.  Every country, with the exception of Mexico and Uruguay, enjoyed significant gains

### _wp13259 - 2005.  Every country, with the exception of Mexico and Uruguay, enjoyed significant gains

### Terms-of-trade shock and region-wide scenario
- IDB (2012) simulation: deepening of the Eurozone crisis and a slowdown in China resulting in a decline of 30 percent in commodity prices.
- Simulation outcomes:
  - Chinese growth falling 3 percentage points.
  - Recessions in the U.S. and Europe.
  - Decline in output in Latin America of 0.6 percent, "somewhat smaller, but more persistent, than that of the global financial crisis."
- Key insight: the region is vulnerable to a global slowdown and a fall in commodity prices, but would not suffer a major collapse as in past episodes; differentiated country impacts depend on dependence of government budgets on terms of trade and residual fiscal space after the crisis.

### Resilient financial system: overall approach
- Regulatory emphasis on solvency and liquidity of institutions.
- Macroprudential rules are required complements to microprudential regulation to limit systemic financial risks.
- Systemic risk arises along two dimensions:
  - Time-series (procyclicality of financial activities).
  - Cross-section (SIFIs—systemically important financial institutions—whose risks can contaminate the whole system).
- Example: limiting currency mismatches has both micro and macroprudential components.

### Features of Latin American banking systems that supported resilience
- Relatively high regulatory capital and low leverage:
  - All countries had regulatory capital above the 8 percent required by Basle II.
  - Chile appears to have the largest leverage ratio in the region; evidence shows "the lower the volatility, the higher the leverage."
- Limits on complex or risky instruments:
  - Chile: banks can only hold corporate and Chilean bonds; only interest rate and exchange rate derivatives allowed; other operations via regulated financial institutions/subsidiaries.
  - Brazil and Mexico have also limited the use of derivatives in the banking system.
- Credit dynamics during the crisis:
  - Sharp contraction of credit at the crisis peak, but credit expansion resumed as economies recovered.
  - Both demand- and supply-side factors likely contributed to the contraction.
- Financial deepness:
  - Measured by ratio of private banking credit to GDP; Latin America ranks relatively low (except Chile).
  - Increase in banking deepness during the 2000s was milder than in emerging Europe or advanced economies.

### Macroprudential instruments used and their limits
- Reserve requirements:
  - Widely used to reduce credit expansion by increasing borrowing costs.
  - Brazil, Colombia and Peru used changes in reserve requirements recently to stem credit booms.
  - Tovar et al. (2012): effects are moderate and transitory; side effects include fueling search for alternative funding, growth of shadow banking.
- Measures to address currency mismatches:
  - All Latin American countries surveyed in IDB (2005) have regulations on currency mismatches in the banking system (quantitative limits, inclusion of exchange rate exposure in credit risk, capital / provisioning consequences).
  - Chile: more provisions to foreign currency lending when borrowers have most income in domestic currency; forward-looking provisions being studied and implemented regionally (Cifuentes et al., 2011).
  - Peru and Uruguay: additional capital requirements applied to foreign currency lending to un-hedge borrowers.
- Disclosure and corporate currency exposure:
  - Crisis highlighted need for better disclosure of corporations' effective currency exposure, particularly when complex derivatives are involved.
- Cross-border exposure and foreign bank presence:
  - Cross-border claims fell more in Asia than in Latin America during the crisis:
    - Korea and Malaysia: decline in 2008.IV was 6.7 and 5 percent of GDP, respectively.
    - Maximum decline in Latin America was in Chile, with a fall of 3 percent of GDP.
  - Latin America exposed mainly to Spanish banks (Santander and BBVA).
  - Predominant use of subsidiaries (rather than branches) by foreign banks in Latin America—subsidiarization induces local funding, separate capital and boards, and can limit contagion.
  - Figure-based finding: within emerging Europe, Asia, and Latin America, Latin America is the region where funding comes more heavily from local sources.
- Rationale for resilience (Kamil and Rai, 2010):
  - Global banks’ credit mostly channeled in domestic currency.
  - Foreign banks operate as local subsidiaries, funded mostly with domestic deposits.
  - Combined features: subsidiarization, strong regulation on currency mismatches, broad deposit base, low reliance on short-term wholesale funding, and a simple trading book.

### Capital controls: use, design, and mixed evidence
- Capital controls discussed as macroprudential tools with dual aims:
  - Limiting exchange rate appreciation (net flows).
  - Fostering financial stability (gross flows).
- Recent country practices:
  - Korea (August 2011): capital levy on non-core liabilities—banks pay a levy of 20 basis points for foreign-currency-denominated liabilities of less than 12-month maturity.
  - Peru: similar levy on foreign borrowing and fees for sale of Central Bank of Peru bonds.
  - Brazil: reserves requirements on foreign borrowing and a tax on transactions of fixed-income instruments and equity.
  - Colombia: unremunerated reserve requirement during 2007-2008 (similar to Chile in the 1990s).
- Evidence:
  - Effects of capital controls on financial stability and exchange rates are inconclusive.
  - Preservation of financial stability occurred in countries that did and did not apply capital controls; exchange rates behaved similarly regardless of controls.
- Two cautionary comments:
  - Capital controls may be used to fight other distortions encouraging capital inflows (e.g., very high interest rates).
  - Chile weathered major crises without controls; Brazil's recent experience may reflect interest-rate-driven inflows rather than a need for controls.

### Accumulation of international reserves: motives, effects, and trade-offs
- Reserves have been widely accumulated by emerging markets in recent years.
- Dual roles of international reserves:
  - Self-insurance (precautionary motive): buffer against sudden stops of capital inflows and reduce risk of balance of payments crises.
  - Mercantilist motive: intervention to ameliorate pressures for appreciation and affect the exchange rate.
- Crisis-era evidence:
  - Countries with larger volumes of reserves experienced smaller increases in their CDS spreads during the crisis, reducing financing-cost impacts (Frankel and Saravelos, 2010; Gourinchas and Obstfeld, 2012).
  - Brazil, Korea and Mexico intervened during difficult moments and may have benefited from credibility imparted by large reserves holdings.
  - Majority of models assume reserves are used, but reserves can have deterrent effects even if unused.
- Alternatives to reserves:
  - Commodity hedges for commodity exporters.
  - Multilateral contingent credit lines (e.g., IMF’s Flexible Credit Line—FCL).
  - Bilateral currency swap lines (more available to relatively large economies).
- Trade-offs and policy dilemma:
  - Choosing contingent credit facilities over hoarding reserves can encourage further capital inflows and reduce intervention incentives, but may weaken exchange-rate management objectives.
  - Holdings of reserves have relevant carry costs that must be weighed.
- Conclusion on adequacy:
  - Evidence from the crisis suggests emerging market economies were not under-insured with their actual levels of reserves.
  - However, maintaining very high reserve levels is costly and limits space for further accumulation.

### Final remarks and policy implications
- Historical lesson: financial liberalization without prudential limits led to severe crises (1980s Latin America); "more was no better than less financial deepening."
- Regulatory stance:
  - Regulate complexity proportionately: emerging-market banks are simpler and regulation should follow institutional complexity.
  - Avoid wholesale overhauls; focus first on whether to allow financial innovation and then on appropriate regulation if allowed.
- Institutional arrangements:
  - Creation of financial stability boards to coordinate agencies; boards must have clear mandates and avoid overlap.
  - Central banks should play a critical role in macroprudential design and financial stability and should have or be granted independence to perform effectively.
- Perimeter and unintended consequences:
  - Stricter bank regulation can push intermediation into unregulated shadow banking—ongoing tension on scope of regulation.
  - Competition policies should be coordinated with financial regulators to avoid promoting competition at the cost of increased vulnerabilities.
- Simplicity and prudence:
  - Overly complex rules are not necessarily robust; simplicity is valuable where feasible.
  - Regulators in emerging markets display a reasonable degree of prudence, permitting mainly activities that can be well understood and monitored.
- Core policy priorities to sustain recovery and progress:
  - Persevere in fiscal responsibility.
  - Maintain inflation control.
  - Preserve flexible exchange rates.
  - Sustain robust prudential regulation of the financial system.

*Source: _wp13259 - 2005. Every country, with the exception of Mexico and Uruguay, enjoyed significant gains*

### REFERENCES

### _wp13259 - REFERENCES

### References
- Aizenman, J., and J. Lee, 2005, “International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence,” IMF Working Paper 05/198.
- Arcand, J.-L., E. Berkes, and U. Panizza, 2012, “Too Much Finance?” IMF Working Paper 12/161.
- Cecchetti, S., and E. Kharroubi, 2012, “Reassessing the Impact of Finance on Growth,” mimeo, BIS.
- Central Bank of Chile, 2009, Financial Stability Report, first half.
- Céspedes, L.F., and A. Rebucci, 2011, “Macro-prudential Policies in Latin America: A Survey,” mimeo, IDB.
- CIEPR (Committee on International Economic Policy Reform), 2012, Banks and Cross-Border Capital Flows: Policy Challenges and Regulatory Responses, Washington, DC: Brookings Institution.
- Cifuentes, R., R. Alfaro, E. Olaberría, and R. Poblete, 2011, “The Chilean Financial System and Macroprudential Policies,” Financial Stability Report, first-half, Central Bank of Chile.
- Cowan, K., and J. De Gregorio, 2007, “International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile,” in S. Edwards (ed.), Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, NBER and The University of Chicago Press.
- Cowan, K., E. Hansen, and L.O. Herrera, 2005, “Currency Mismatches, Balance Sheet Effects and Hedging in Chilean Non-financial Corporations,” in R. Caballero, C. Calderón, and L. F. Céspedes (eds.) External Vulnerability and Preventive Policies: Central Bank of Chile.
- de Carvalho Filho, I., 2010, “Inflation Targeting and the Crisis: An Empirical Assessment,” mimeo, IMF, December.
- De Gregorio, J., 2011, “International Reserves Hoarding in Emerging Markets,” Economic Policy Paper No. 40, Central Bank of Chile.
- De Gregorio, J., 2012, Comments on Haldane and Madouros, presented at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium, The Changing Policy Landscape, Jackson Hole, Wyoming.
- De Gregorio, J., 2014, How Latin American Weathered the Global Financial Crisis, Washington D.C.: Peterson Institute of International Economics, forthcoming.
- De Gregorio, J., and P. Guidotti, 1995, “Financial Development and Economic Growth,” World Development, Vol. 23, No. 3, pp. 433-48.
- De Gregorio, J., and A. Tokman, 2007, “Overcoming Fear of Floating: Exchange Rate Policies in Chile,” in N. Batini (ed.), Monetary Policy in Emerging Markets and Other Developing Countries, New York: Nova Science Publishers Inc.
- Diaz-Alejandro, C., 1985, “Good-bye Financial Repression, Hello Financial Crash,” Journal of Development Economics, Vol. 19, No. 1-2, pp. 1-24.
- Frankel, J., and G. Saravelos, 2010, “Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis,” NBER Working Paper No. 16047.
- Frankel, J., C. Végh, and G. Vuletin, 2011, “On Graduation from Procyclicality,” NBER Working Paper No. 17619.
- Gourinchas, P.-O., and M. Obstfeld, 2012, “Stories of the Twentieth Century for the Twenty-First,” American Economic Journal: Macroeconomics, American Economic Association, Vol. 4, No. 1, pp. 226-65, January.
- Haldane, A.G., and V. Madouros, 2012, “The Dog and the Frisbee,” presented at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium, The Changing Policy Landscape, Jackson Hole, Wyoming.
- IDB (Inter-American Development Bank), 2005, Unlocking Credit: The Quest for Deep and Stable Bank Lending, Economic and Social Progress in Latin America: 2005 Report. Washington, DC: IDB.
- IDB (Inter-American Development Bank), 2012, The World of Forking Paths: Latin America and the Caribbean Facing Global Economic Risks, The Latin American and Caribbean Macro Report 2012, Washington, DC: IDB.
- Jácome, L.I., E.W. Nier, and P. Imam, 2012, “Building Blocks for Effective Macroprudential Policies in Latin America: Institutional Considerations,” IMF Working Paper 12/183.
- Kamil, H., and K. Rai, 2010, “The Global Credit Crunch and Foreign Banks’ Lending to Emerging Markets: Why Did Latin America Fare Better?” IMF Working Paper 10/102.
- Magud, N., C. Reinhart, and K. Rogoff, 2011, “Capital Controls: Myth and Reality – A Portfolio Balance Approach,” NBER Working Paper No. 16805.
- Miller, M., P. Weller, and L. Zhang, 2002, “Moral Hazard and the U.S. Stock Market: Analyzing the Greenspan Put,” Economic Journal, Vol. 112, No. 478, pp. C171–86.
- Tovar, C.E., M. Garcia-Escribano, and M.V. Martin, 2012, “Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America,” IMF Working Paper 12/142.

### Figures and Data Illustrations
- Figure 1. Gross Public Debt 2008 (% of GDP)
  - Source: IMF, Fiscal Monitor Statistics.
- Figure 2. Monetary Policy Interest Rates
  - Source: Bloomberg.
  - Series labels shown: Brazil, Chile, Colombia, Mexico, Peru; x-axis includes date ticks such as 07-07 10-07 01-08 04-08 07-08 10-08 01-09 04-09 07-09 10-09 01-10 04-10 07-10 10-10 01-11 04-11 07-11 10-11 01-12 04-12 07-12 12.
- Figure 3. Monetary and Fiscal Stimulus
  - Sources: Bloomberg, Central Bank of Chile, IMF and Ministries of Finance.
  - Note: MPR: Monetary Policy Rate.
- Figure 4. Exchange Rates during the Global Financial Crisis (domestic currency per USD, period average=100)
  - Source: Bloomberg. Figure in brackets indicates depreciation from bottom to top. An increase indicates a depreciation of the currency.
  - Series and bracketed depreciations shown: Chile (59), Brazil (61), Mexico (58), Colombia (58), South Korea (68), Indonesia (40).
  - X-axis date ticks include 01/08 02/08 03/08 ... 12/09.
- Figure 5. Terms of Trade (Average 1980-2010=100)
  - (a) Evolution
  - (b) Minimum, maximum, 2010 and 2000-2005
  - Source: World Bank, Net Barter Terms of Trade Index, http://data.worldbank.org/indicator/TT.PRI.MRCH.XD.WD
  - Countries shown: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, Venezuela, RB.
  - Time axis includes years 1980 through 2010.
- Figure 6. Banks’ Capital Ratios (times, percentage)
  - Sources: Central Bank of Chile, Financial Stability Report, 2009-I, IMF.
  - Note: Considers only commercial banks. Investment banks are excluded and they have leverage ratios in 2008 of about 26.
- Figure 7. Private Credit as Share of GDP (percentage)
  - Source: IMF, IFS.
  - Countries and groups listed include Greece, Australia, Spain, Norway, Austria, Peru, Japan, USA*, Chile, Canada, Czech Rep., Colombia, Latin America, Bulgaria, Mexico, Emerging Europe, Brazil, Argentina, Turkey.
  - Chart markers include Leverage (assets/capital) and Capital adequacy ratio (Reg. capital/Risk weighted assets) with numeric ticks 5 10 15 20 25 and 10 12 14 16 18.
  - Time comparison shown: 2000 2008.
- Figure 8. Quarterly Change in Cross-Border Claims on Latin America and Asia (millions of US$)
  - Source: Consolidated Banking Statistics (immediate borrower basis), BIS.
  - Y-axis includes values -150000 -100000 -50000 0 50000 100000 2005-Q1 ... 2011-Q4.
  - Series: Latam, Asia.
- Figure 9. Foreign Claims of BIS Reporting Banks (percentage, 2011.II)
  - Source: Consolidated Banking Statistics (immediate borrower basis), BIS.
  - Categories shown: LATAM, ASIA, EUR, Spain, United Kingdom, United States, LAC, Eurozone, Other European, Offshore with percentage axis 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%.
- Figure 10. Composition of Foreign Claims (percentage, 2011.II)
  - Source: Consolidated Banking Statistics (immediate borrower basis), BIS.
  - Composition categories include International and Local with percentage axis 0%20%40%60%80%100%.
- Figure 11. International Reserves (% of GDP)
  - Source: IMF-IFS and WEO.
  - Countries/time series shown include Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, Korea, Indonesia, Malaysia, Philippines, Thailand, Czech Rep., Hungary, Latvia, Lithuania, Poland, Romania, Israel with year markers 1990 2000 2008 2011.

*Source: _wp13259 - REFERENCES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13259.pdf_