“Original Sin,” Balance Sheet Crises, and the Roles of International Lending
December 1, 2002
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Summary
We present a stylized framework which encompasses a variety of "balance sheet approaches" to currency crises that have been suggested in the literature, and analyze their policy implications. The common theme is that currency and maturity mismatches in private sector balance sheets constrain the capacity of monetary and fiscal policies to deal with self-fulfilling capital account crises, and generate a role for international crisis lending. International lending could be used to back domestic last-resort lending to banks, or to loosen fiscal constraints. Provided they have a sound fiscal position in normal times, this can make countries immune to self-fulfilling crises.
Subject: Banking, Credit, Exchange rate arrangements, Exchange rates, Financial statements
Keywords: balance sheet, credit crunch, interest rate, monetary policy, WP
Pages:
27
Volume:
2002
DOI:
Issue:
234
Series:
Working Paper No. 2002/234
Stock No:
WPIEA2342002
ISBN:
9781451875638
ISSN:
1018-5941
