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On the International Financial Architecture: Insuring Emerging Markets

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  • Ricardo J. Caballero

Abstract

In spite of significant institutional and macroeconomic reforms over the last decade or two, capital flows to developing economies remain highly volatile. In 1996, net private capital flows to emerging markets reached US$230 billions; by 1997 these flows had been cut in half; by 1998 halved again; and after a mild recovery during 1999, flows fell in 2000 and 2001 to slightly over one-tenth the level of 1996. These reversals in capital flows have enormous economic and social costs for developing economies. For well behaved' countries, a significant share of these fluctuations is triggered by events that are outside their direct control, and often outside the control of emerging markets as a whole. Building on this observation, this paper highlights some of the desirable features of insurance and hedging instruments against capital flow volatility, and discusses steps to facilitate the creation of these markets.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9570.

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Date of creation: Mar 2003
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Publication status: published as Caballero, Ricardo J. “On the International Financial Architecture: Insuring Emerging Markets," Journal of Financial Transformation, (The Capco Institute), 7: 8-12, March 2003
Handle: RePEc:nbr:nberwo:9570

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  1. Krishnamurthy, Arvind, 2003. "Collateral constraints and the amplification mechanism," Journal of Economic Theory, Elsevier, vol. 111(2), pages 277-292, August.
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Cited by:
  1. Fujiki, Hiroshi & Watanabe, Kiyoshi, 2003. "Effects of External Debt on Domestic Resource Allocation in a Small Open Economy with Limited Access to the World Capital Market," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(4), pages 21-56, December.
  2. Hutchison, Michael M. & Noy, Ilan, 2004. "Sudden Stops and the Mexican Wave: Currency Crises, Capital Flow Reversals and Output Loss in Emerging Markets," Santa Cruz Center for International Economics, Working Paper Series qt38j2b036, Center for International Economics, UC Santa Cruz.
  3. Laura Alfaro & Fabio Kanczuk, 2007. "Optimal Reserve Management and Sovereign Debt," NBER Working Papers 13216, National Bureau of Economic Research, Inc.
  4. Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," Discussion Paper Series, Department of Economics 201004, Department of Economics, University of St. Andrews.
  5. Barry Eichengreen, 2006. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," NBER Working Papers 12451, National Bureau of Economic Research, Inc.
  6. Joshua Aizenman & Daniel Riera-Crichton, 2006. "Real Exchange Rate and International Reserves in the Era of Growing Financial and Trade Integration," NBER Working Papers 12363, National Bureau of Economic Research, Inc.
  7. Aizenman, Joshua, 2007. "International reserves management and the current account," Santa Cruz Department of Economics, Working Paper Series qt22q271t2, Department of Economics, UC Santa Cruz.
  8. Joshua Aizenman, 2006. "International Reserves Management and the Current Account," NBER Working Papers 12734, National Bureau of Economic Research, Inc.
  9. Mendoza, Ronald U., 2004. "International reserve-holding in the developing world: self insurance in a crisis-prone era?," Emerging Markets Review, Elsevier, vol. 5(1), pages 61-82, March.
  10. Andrew G Haldane, 1997. "Designing Inflation Targets," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
  11. International Monetary Fund, 2005. "Capital Account Liberalization and the Real Exchange Rate in Chile," IMF Working Papers 05/132, International Monetary Fund.
  12. Canuto, Otaviano & Pinto, Brian & Prasad, Mona, 2012. "Orderly sovereign debt restructuring : missing in action !," Policy Research Working Paper Series 6054, The World Bank.

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