Balance of Payments Anti-Crises

Author/Editor:

Isabel K. Yan ; Michael Kumhof

Publication Date:

June 1, 2009

Electronic Access:

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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:

Several emerging economies have, until recently, experienced large government surpluses and accelerating foreign exchange reserve accumulation. This has been accompanied by economic booms, exchange rate appreciations and in some cases increases in domestic inflation. We show that one way to understand these episodes is as manifestations of balance of payments anti-crises, as reflecting the perception that the government intends to discontinue its accumulation of reserves in the near future. The end-phase of such crises is characterized by nominal interest rates approaching their zero lower bound in accelerating fashion and, if the government targets CPI inflation, by fast increasing domestic inflation.

Series:

Working Paper No. 09/134

Subject:

English

Publication Date:

June 1, 2009

ISBN/ISSN:

9781451872811/1018-5941

Stock No:

WPIEA2009134

Format:

Paper

Pages:

22

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