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Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium

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Author Info

  • Hausmann Ricardo

    (Harvard University)

  • Panizza Ugo

    (UNCTAD)

Abstract

This paper updates our previous work on the level and evolution of original sin. It shows that while the number of countries that issue local-currency debt in international markets has increased in the past decade, this improvement has been quite modest. Although we find that countries have been borrowing at home, thanks to deepening domestic markets, we document that foreign participation in these markets is more limited than what is usually assumed. The paper shows that the recent decline of currency mismatches and the consequent ability to conduct countercyclical macroeconomic policies is due to lower net debt (abstinence) and not to redemption from original sin. We conclude that original sin continues to make financial globalization unattractive and developing countries have opted for abstinence because foreign currency debt is too risky. The promised paradise of financial globalization will need to wait for redemption from original sin.

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File URL: http://www.degruyter.com/view/j/jgd.2011.2.1/jgd.2011.2.1.1127/jgd.2011.2.1.1127.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Globalization and Development.

Volume (Year): 2 (2011)
Issue (Month): 1 (August)
Pages: 1-35

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Handle: RePEc:bpj:globdv:v:2:y:2011:i:1:n:4

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References

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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
  4. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  6. Kevin Cowan & Eduardo Levy-Yeyati & Ugo Panizza & Federico Sturzenegger, 2006. "Sovereign Debt in the Americas: New Data and Stylized Facts," Working Papers Central Bank of Chile 371, Central Bank of Chile.
  7. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  8. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
  9. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," Research Department Publications 4508, Inter-American Development Bank, Research Department.
  10. Hausmann, Ricardo & Panizza, Ugo, 2003. "On the determinants of Original Sin: an empirical investigation," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 957-990, December.
  11. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November.
  12. Mehl, Arnaud & Reynaud, Julien, 2005. "The determinants of ‘domestic’ original sin in emerging market economies," Working Paper Series 0560, European Central Bank.
  13. Ugo Panizza, 2008. "Domestic And External Public Debt In Developing Countries," UNCTAD Discussion Papers 188, United Nations Conference on Trade and Development.
  14. Ugo Panizza & Dany Jaimovich, 2007. "Procyclicality or Reverse Causality?," IDB Publications 6843, Inter-American Development Bank.
  15. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," NBER Working Papers 12552, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Marc Pourroy, 2013. "Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies," Documents de travail du Centre d'Economie de la Sorbonne 13074, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Panizza, Ugo & Presbitero, Andrea F., 2012. "Public debt and economic growth: Is there a causal effect?," POLIS Working Papers 168, Institute of Public Policy and Public Choice - POLIS.
  3. Barry Eichengreen, Marc Flandreau, 2010. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914-1939," IHEID Working Papers 16-2010, Economics Section, The Graduate Institute of International Studies.
  4. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2010. "International Government Debt," UNCTAD Discussion Papers 199, United Nations Conference on Trade and Development.
  5. Dell'Erba, Salvatore & Hausmann, Ricardo & Panizza, Ugo, 2013. "Debt Levels, Debt Composition, and Sovereign Spreads in Emerging and Advanced Economies," Working Paper Series rwp13-028, Harvard University, John F. Kennedy School of Government.
  6. Megersa, kelbesa, 2014. "The laffer curve and the debt-growth link in low-income Sub-Saharan African economies," MPRA Paper 54362, University Library of Munich, Germany.
  7. Ugo Panizza & Andrea F. Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 175-204, June.
  8. Mora, Nada & Neaime, Simon & Aintablian, Sebouh, 2013. "Foreign currency borrowing by small firms in emerging markets: When domestic banks intermediate dollars," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1093-1107.
  9. Metzger, Martina & Taube, Günther, 2010. "The rise of emerging markets' financial market architecture: constituting new roles in the global financial goverancen," MPRA Paper 31433, University Library of Munich, Germany.
  10. Jiaqian Chen & Patrick A. Imam, 2011. "Causes of Asset Shortages in Emerging Markets," IMF Working Papers 11/114, International Monetary Fund.
  11. Barry Eichengreen & Marc Flandreau, 2010. "The Federal Reserve, the Bank of England and the rise of the dollar as an international currency, 1914-39," BIS Working Papers 328, Bank for International Settlements.

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