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Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters

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  • Barry Eichengreen
  • Ricardo Hausmann
  • Ugo Panizza

Abstract

Recent years have seen the development of a large literature on balance sheet factors in emerging-market financial crises. In this paper we discuss three concepts widely used in this literature. Two of them original sin' and debt intolerance' seek to explain the same phenomenon, namely, the volatility of emerging-market economies and the difficulty these countries have in servicing and repaying their debts. The debt-intolerance school traces the problem to institutional weaknesses of emerging-market economies that lead to weak and unreliable policies, while the original-sin school traces the problem instead to the structure of global portfolios and international financial markets. The literature on currency mismatches, in contrast, is concerned with the consequences of these problems and with how they are managed by the macroeconomic and financial authorities. Thus, the hypotheses and problems to which these three terms refer are analytically distinct. The tendency to use them synonymously has been an unnecessary source of confusion.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10036.

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Date of creation: Oct 2003
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Handle: RePEc:nbr:nberwo:10036

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  1. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  2. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  3. Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange rate volatility and intervention: implications of the theory of optimum currency areas," Journal of International Economics, Elsevier, vol. 45(2), pages 191-209, August.
  4. Ricardo Hausmann & Michael Gavin, 1996. "Securing Stability and Growth in a Shock Prone Region: The Policy Challenge for Latin America," Research Department Publications 4020, Inter-American Development Bank, Research Department.
  5. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  6. Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2000. "Currency Crises and Monetary Policy in an Economy with Credit Constraints," Working Papers 00.07, Swiss National Bank, Study Center Gerzensee.
  7. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  8. 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.
  9. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Aggregating governance indicators," Policy Research Working Paper Series 2195, The World Bank.
  10. Morris Goldstein, 1998. "The Asian Financial Crisis," Policy Briefs PB98-1, Peterson Institute for International Economics.
  11. 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.
  12. Eichengreen, Barry, 2002. "Financial Crises and What to Do About Them," OUP Catalogue, Oxford University Press, number 9780199257447.
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  14. Marco Bonomo, . "Debt Composition and Balance Sheet Effects of Exchange and Interest Rate Volatility in Brazil," DCBSLA Series 1, Inter-American Development Bank, Research Department.
  15. Assaf Razin & Efraim Sadka, 2001. "Country Risk and Capital Flow Reversals," NBER Working Papers 8171, National Bureau of Economic Research, Inc.
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  17. Michael Gavin & Ricardo Hausmann & Leonardo Leiderman, 1995. "The Macroeconomics of Capital Flows to Latin America: Experience and Policy Issues," IDB Publications 5821, Inter-American Development Bank.
  18. Sato, Shuhei, 1998. "Asian Financial Crisis," Japan and the World Economy, Elsevier, vol. 10(3), pages 371-375, July.
  19. Richard J. Herring & Nathporn Chatusripitak, 2000. "The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development," Center for Financial Institutions Working Papers 01-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
  20. Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373.
  21. John D. Burger & Francis E. Warnock, 2003. "Diversification, original sin, and international bond portfolios," International Finance Discussion Papers 755, Board of Governors of the Federal Reserve System (U.S.).
  22. Michael Gavin & Ricardo Hausmann & Leonardo Leiderman, 1995. "Macroeconomics of Capital Flows to Latin America: Experience and Policy Issues," Research Department Publications 4012, Inter-American Development Bank, Research Department.
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  1. La deuda en los tiempos de K
    by Lindahl in Finanzas P├║blicas on 2008-08-18 02:30:00
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