Conventional and Insidious Macroeconomic Balance-Sheet Crises
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Summary:
This paper describes the anatomy of two types of balance-sheet macroeconomic crises. Conventional balance-sheet crises are triggered by external imbalances and balance sheet vulnerabilities. They typically occur after capital inflows have led to a substantial build up of foreign currency exposure. Insidious crises are triggered by internal imbalances and balance sheet vulnerabilities. They occur in high-growth economies when an initially equilibrating shift in relative prices and resources and credit in favor of the nontraded sector overshoots equilibrium. The paper argues that policymakers are now better able to forestall conventional crises, but they are much less capable of early detection and avoidance of insidious crises.
Series:
Working Paper No. 14/160
Subject:
Balance sheets Business cycles Capital account Capital flows Developed countries Emerging markets Financial crises Fiscal imbalances International finance
English
Publication Date:
August 22, 2014
ISBN/ISSN:
9781498389044/1018-5941
Stock No:
WPIEA2014160
Format:
Paper
Pages:
40
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