Sterilization of Capital Inflows and Balance of Payments Crises
AbstractLarge capital inflows and repeated balance of payments crises (BOPC) associated with their sudden reversal have characterized the emerging market economies during the 90's. Sterilized intervention has been the most common response to capital inflows. This paper links the sterilization efforts with BOPC in a general equilibrium model. We study an economy facing a temporary decrease in the international interest rate, and show that an attempt to sterilize capital inflows leads the economy to a BOPC, while a pure Currency Board would avoid it. We argue that this experiment is relevant to understand the 1994 Mexican currency crisis.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 189.
Date of creation: 11 Aug 2004
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Balance of Payments Crises; Sterilization of Capital Inflows; Mexican Crisis;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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