## Balance of Payments Anti-Crises

_IMF Working Papers, June 1, 2009_

## Source details

**Canonical URL:** [Balance of Payments Anti-Crises](https://www.imf.org/en/publications/wp/issues/2016/12/31/balance-of-payments-anti-crises-23054)

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## Bibliographic details
- Authors: Isabel K. Yan, Michael Kumhof
- Published: June 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872811.001

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### Summary
- Several emerging economies have, until recently, experienced large government surpluses and accelerating foreign exchange reserve accumulation.
- These episodes have been accompanied by economic booms, exchange rate appreciations and in some cases increases in domestic inflation.
- The paper shows that one way to understand these episodes is as manifestations of balance of payments anti-crises, 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.

### Key findings and dynamics
- Balance of payments anti-crises can arise when agents perceive that the government will stop accumulating foreign exchange reserves.
- Associated macroeconomic patterns documented:
  - Large government surpluses.
  - Accelerating foreign exchange reserve accumulation.
  - Economic booms.
  - Exchange rate appreciations.
  - In some cases, increases in domestic inflation.
- End-phase characteristics:
  - Nominal interest rates approach the zero lower bound in accelerating fashion.
  - If the government targets CPI inflation, domestic inflation rises quickly.

### Policy-relevant concepts and mechanisms
- Central role of government reserve accumulation behavior in driving exchange rate and inflation dynamics.
- Interaction between:
  - CPI inflation targeting by the government.
  - Reserve accumulation and perceived discontinuation of that accumulation.
  - Nominal interest rates moving toward the zero lower bound.
- Relevant policy variables and topics listed:
  - Central banks
  - Exchange rates and exchange rate targeting
  - Foreign exchange and foreign exchange reserves
  - Inflation and inflation targeting
  - International reserves
  - Monetary policy
  - Prices and price level dynamics
  - Rate of exchange rate depreciation
  - Reserves accumulation

### Publication and metadata
- Authors: Isabel K. Yan, Michael Kumhof
- Publication date: June 1, 2009
- Series: Working Paper No. 2009/134
- Issue: 134
- Volume: 2009
- Pages: 22
- DOI: https://doi.org/10.5089/9781451872811.001
- Stock No: WPIEA2009134
- ISBN: 9781451872811
- ISSN: 1018-5941
- Subjects: Central banks; Exchange rates; Foreign exchange; Inflation; Inflation targeting; International reserves; Monetary policy; Prices; Reserves accumulation; Zero lower bound
- Keywords: Balance of payments anti-crises; central bank; CPI inflation targeting; exchange rate appreciation; exchange rate targeting; Exchange rates; foreign exchange; foreign exchange reserves; Global; Inflation; inflation dynamics; Inflation targeting; International reserves; price level; rate of exchange rate depreciation; Reserves accumulation; WP

*Source: Balance of Payments Anti-Crises, IMF Working Paper No. 2009/134, Isabel K. Yan and Michael Kumhof.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/balance-of-payments-anti-crises-23054_