A New Index of Currency Mismatch and Systemic Risk
AbstractThis paper constructs a new measure of currency mismatch in the banking sector that controls for bank lending to unhedged borrowers. This measure explicitly takes into account the indirect exchange rate risk that banks undertake when they lend to borrowers that will not be able to repay in the event of a sharp depreciation. Such systemic risk taking is not captured by indicators that are based only on banksâ€™ balance sheet data. The new measure is constructed for 10 emerging European economies and for a broader sample that includes 19 additional emerging economies, for the period 1998 - 2008. Comparisons with previous currency mismatch measures that do not adjust for unhedged foreign currency borrowing illustrate the advantages of the new approach. In particular, the new measure flagged the indirect currency mismatch vulnerabilities that were building up in a number of emerging economies before the recent global crisis. Measuring currency mismatch more accurately can help country authorities in their efforts to address vulnerabilities at the right time, avoiding hurting growth prospects.
Download InfoIf 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.
Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/263.
Date of creation: 01 Nov 2010
Date of revision:
Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
Other versions of this item:
- Rancière, Romain & Tornell, Aaron & Vamvakidis, Athanasios, 2011. "A New Index of Currency Mismatch and Systemic Risk," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8250, C.E.P.R. Discussion Papers.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-BAN-2010-12-04 (Banking)
- NEP-CBA-2010-12-04 (Central Banking)
- NEP-IFN-2010-12-04 (International Finance)
- NEP-MON-2010-12-04 (Monetary Economics)
- NEP-RMG-2010-12-04 (Risk Management)
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.:
- Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 373, July.
- Romain Ranciere & Aaron Tornell & Frank Westermann, 2005.
"Systemic Crises and Growth,"
NBER Working Papers
11076, National Bureau of Economic Research, Inc.
- Romain Ranciere & Aaron Tornell & Frank Westermann, 2002. "Systemic Crises and Growth," Working Papers 190, Barcelona Graduate School of Economics.
- Romain Ranciere & Aaron Tornell & Frank Westermann, 2005. "Systemic Crises and Growth," CESifo Working Paper Series 1451, CESifo Group Munich.
- Romain Rancière & Aaron Tornell & Frank Westermann, 2002. "Systemic crises and growth," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 854, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2004.
- Carlos O. Arteta, 2003. "Are financially dollarized countries more prone to costly crises?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 763, Board of Governors of the Federal Reserve System (U.S.).
- Carlos O. Arteta, 2002.
"Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?,"
International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.)
738, Board of Governors of the Federal Reserve System (U.S.).
- Carlos Óscar Arteta, 2003. "Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?," International Finance, EconWPA 0303005, EconWPA.
- Romain Ranciere & Aaron Tornell & Athanasios Vamvakidis, 2010. "Currency mismatch, systemic risk and growth in emerging Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 25, pages 597-658, October.
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2007. "Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters," NBER Chapters, National Bureau of Economic Research, Inc, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 121-170 National Bureau of Economic Research, Inc.
- Livia Chitu, 2013. "Was Unofficial Dollarisation/Euroisation an Amplifier of the ‘Great Recession’ of 2007–2009 in Emerging Economies?," Comparative Economic Studies, Palgrave Macmillan, vol. 55(2), pages 233-265, June.
- Josifidis, Kosta & Allegret, Jean-Pierre & Gimet, Céline & Pucar, Emilija Beker, 2014. "Macroeconomic policy responses to financial crises in emerging European economies," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 577-591.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).
If references are entirely missing, you can add them using this form.