Can Emerging Market Central Banks Bail Out Banks? A+L4848 Cautionary Tale From Latin America

By Luis Ignacio Jácome, Tahsin Saadi Sedik, Simon Townsend

November 1, 2011

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Luis Ignacio Jácome, Tahsin Saadi Sedik, and Simon Townsend. Can Emerging Market Central Banks Bail Out Banks? A+L4848 Cautionary Tale From Latin America, (USA: International Monetary Fund, 2011) accessed November 8, 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

This paper investigates whether developing and emerging market countries can implement monetary policies similar to those used by advanced countries during the recent global crisis - injecting significant amounts of money into the financial system without facing major short-run adverse macroeconomic repercussions. Using panel data techniques, the paper analyzes episodes of financial turmoil in 16 Latin America during 1995-2007. The results show that developing and emerging market countries should be cautious because injecting money on a large scale into the financial system may fuel further macroeconomic instability, increasing the chances of simultaneous currency crises.

Subject: Banking, Banking crises, Currencies, Exchange rates, Financial crises, Foreign exchange, Monetary base, Money

Keywords: Bank restructuring institution, Banking crises, Banking crisis, Central bank assistance, Central bank credibility, Central bank money, Central bank support, Central banks, Currencies, Currency crises, Currency depreciation, Exchange rates, Financial stability, Financial support, Flight to quality, Global, Market share, Monetary base, Monetary policy, Nominal exchange rate, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/258
Stock No:

WPIEA2011258
ISBN:

9781463923976
ISSN:

1018-5941

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