A Balance Sheet Approach to Financial Crisis

By Brad Setser, Nouriel Roubini, Christian Keller, Mark Allen, Christoph B. Rosenberg

December 1, 2002

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Brad Setser, Nouriel Roubini, Christian Keller, Mark Allen, and Christoph B. Rosenberg A Balance Sheet Approach to Financial Crisis, (USA: International Monetary Fund, 2002) accessed September 24, 2024

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

The paper lays out an analytical framework for understanding crises in emerging markets based on examination of stock variables in the aggregate balance sheet of a country and the balance sheets of its main sectors (assets and liabilities). It focuses on the risks created by maturity, currency, and capital structure mismatches. This framework draws attention to the vulnerabilities created by debts among residents, particularly those denominated in foreign currency, and it helps to explain how problems in one sector can spill over into other sectors, eventually triggering an external balance of payments crisis. The paper also discusses the potential of macroeconomic policies and official intervention to mitigate the cost of such a crisis.

Subject: Currencies, Currency mismatches, Exchange rates, External debt, Financial crises, Financial statements, Foreign exchange, Money, Public financial management (PFM)

Keywords: Capital structure, Currencies, Currency risk, Debt restructuring, Emerging markets, Exchange rates, Financial crisis, Financial statements, Foreign currency, Global, Hard currency, IMF policy, Interest rate, National balance sheets, Nominal exchange rate, Preferred debt, Rollover crisis, Short-term debt, WP

Publication Details

Pages:

63
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/210
Stock No:

WPIEA2102002
ISBN:

9781451957150
ISSN:

1018-5941

Notes

See also: The Balance Sheet Approach and its Applications at the Fund, June 30, 2003

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