Advanced Search
MyIDEAS: Login to save this paper or follow this series

Exchange Market Pressure and Absorption by International Reserves: Emerging Markets and Fear of Reserve Loss During the 2008-09 Crisis

Contents:

Author Info

  • Aizenman, Joshua
  • Hutchison, Michael

Abstract

This paper evaluates how the global financial crisis emanating from theU.S. was transmitted to emerging markets. Our focus is on the extent thatthe crisis caused external market pressures (EMP), and whether theabsorption of the shock was mainly through exchange rate depreciation orthe loss of international reserves. Controlling for variety of factorsassociated with EMP, we find clear evidence that emerging markets withhigher total foreign liabilities, including short- and long-term debt,equities, FDI and derivative products—had greater exposure and weremuch more vulnerable to the financial crisis. Countries with large balancesheet exposure -- high external portfolio liabilities exceeding internationalreserves—absorbed the global shock by allowing greater exchange ratedepreciation and comparatively less reserve loss. Despite the remarkablebuildup of international reserves by emerging markets during the periodprior to the financial crisis, countries relied primarily on exchange ratedepreciation rather than reserve loss to absorb most of the exchangemarket pressure shock. This could reflect a deliberate choice (“fear ofreserve loss†or competitive depreciations) or market actions that causedvery rapid exchange rate adjustment, especially in emerging markets withopen capital markets, overwhelming policy actions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.escholarship.org/uc/item/8g25f4qs.pdf;origin=repeccitec
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt8g25f4qs.

as in new window
Length:
Date of creation: 15 Sep 2010
Date of revision:
Handle: RePEc:cdl:ucscec:qt8g25f4qs

Contact details of provider:
Postal: Santa Cruz, CA 95064
Phone: (831) 459-2743
Fax: (831) 459-5077
Email:
Web page: http://www.escholarship.org/repec/ucscecon/
More information through EDIRC

Related research

Keywords: Social and Behavioral Sciences; Exchange market pressure; international reserves; balance sheet exposure; crisis;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Stephan Danninger & Irina Tytell & Ravi Balakrishnan & Selim Elekdag, 2009. "The Transmission of Financial Stress From Advanced to Emerging Economies," IMF Working Papers, International Monetary Fund 09/133, International Monetary Fund.
  2. Obstfeld, Maurice, 2010. "The immoderate world economy," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(4), pages 603-614, June.
  3. Joshua Aizenman & Yi Sun, 2009. "The financial crisis and sizable international reserves depletion: From 'fear of floating' to the 'fear of losing international reserves'?," NBER Working Papers, National Bureau of Economic Research, Inc 15308, National Bureau of Economic Research, Inc.
  4. Jeffrey A. Frankel, 2009. "New Estimation of China's Exchange Rate Regime," NBER Working Papers, National Bureau of Economic Research, Inc 14700, National Bureau of Economic Research, Inc.
  5. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper, University Library of Munich, Germany 14000, University Library of Munich, Germany.
  6. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, American Economic Association, vol. 67(4), pages 537-48, September.
  7. Jeffrey A. Frankel & George Saravelos, 2010. "Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis," NBER Working Papers, National Bureau of Economic Research, Inc 16047, National Bureau of Economic Research, Inc.
  8. Obstfeld, Maurice & Rogoff, Kenneth, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Oct, pages 131-172.
  9. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, Elsevier, vol. 49(6), pages 1603-1635, August.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Robert N. McCauley, 2013. "Risk-On/Risk-Off, Capital Flows, Leverage, and Safe Assets," Finance Working Papers, East Asian Bureau of Economic Research 23390, East Asian Bureau of Economic Research.
  2. Luis Servén & Ha Nguyen, 2013. "Global Imbalances: Origins and Prospects," World Bank Research Observer, World Bank Group, World Bank Group, vol. 28(2), pages 191-219, August.
  3. Laura Alfaro & Fabio Kanczuk, 2013. "Carry Trade, Reserve Accumulation, and Exchange-Rate Regimes," NBER Working Papers, National Bureau of Economic Research, Inc 19098, National Bureau of Economic Research, Inc.
  4. Cheng, Gong, 2011. "A Growth Perspective on Foreign Reserve Accumulation," MPRA Paper, University Library of Munich, Germany 46668, University Library of Munich, Germany, revised 01 Mar 2013.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cdl:ucscec:qt8g25f4qs. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.