IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Managing new-style currency crises: the swan diagram approach revisited

  • Ramkishen S. Rajan

    (George Mason University, VA, USA)

The new-style currency crises that have afflicted a number of developing and emerging economies of late are characterised by sudden stops in capital inflows and adverse balance sheet effects. Given the potential high costs of these crises, there remains an ongoing debate on how they might best be managed when they do arise. This paper argues that the age-old Swan diagram, appropriately modified, is able to provide useful insights into how a country might manage a new-style crisis via a combination of adjustment (which involves expenditure switching and reducing polices) and financing. Copyright © 2006 John Wiley & Sons, Ltd.

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://hdl.handle.net/10.1002/jid.1341
File Function: Link to full text; subscription required
Download Restriction: no

Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 19 (2007)
Issue (Month): 5 ()
Pages: 583-606

as
in new window

Handle: RePEc:wly:jintdv:v:19:y:2007:i:5:p:583-606
Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/5102/home

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. 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 Department of Economics, Working Paper Series qt38j2b036, Department of Economics, UC Santa Cruz.
  2. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "A Corporate Balance Sheet Approach to Currency Crises," CEPR Discussion Papers 3092, C.E.P.R. Discussion Papers.
  3. Peter S. Heller, 2002. "Considering the IMF's Perspective on a "Sound Fiscal Policy"," IMF Policy Discussion Papers 02/08, International Monetary Fund.
  4. Flood, Robert P. & Jeanne, Olivier, 2005. "An interest rate defense of a fixed exchange rate?," Journal of International Economics, Elsevier, vol. 66(2), pages 471-484, July.
  5. Nancy P. Marion & Robert P. Flood, 1998. "Perspectiveson the Recent Currency Crisis Literature," IMF Working Papers 98/130, International Monetary Fund.
  6. Barry Eichengreen & Carlos Arteta, 2001. "Banking Crises in Emerging Markets: Presumptions and Evidence," Macroeconomics 0012012, EconWPA.
  7. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
  8. Drazen, Allan, 2000. "Interest-rate and borrowing defense against speculative attack," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 303-348, December.
  9. Mehl, Arnaud & Reynaud, Julien, 2005. "The determinants of ‘domestic’ original sin in emerging market economies," Working Paper Series 0560, European Central Bank.
  10. Heinz G. Preusse, 2001. "Banks, Financial Liberalisation and Financial Crises in Emerging Markets," The World Economy, Wiley Blackwell, vol. 24(7), pages 911-931, 07.
  11. Steven B. Kamin & Marc Klau, 1998. "Some multi-country evidence on the effects of real exchange rates on output," International Finance Discussion Papers 611, Board of Governors of the Federal Reserve System (U.S.).
  12. Harold Bierman, 2001. "Bad Market Days," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(3), pages 177-191, July.
  13. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  14. Bansal, Ravi & Dahlquist, Magnus, 2000. "The forward premium puzzle: different tales from developed and emerging economies," Journal of International Economics, Elsevier, vol. 51(1), pages 115-144, June.
  15. Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, August.
  16. George Kopits, 2000. "How Can Fiscal Policy Help Avert Currency Crises?," IMF Working Papers 00/185, International Monetary Fund.
  17. Morris Goldstein, 1998. "Asian Financial Crisis: Causes, Cures and Systemic Implications, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa55, December.
  18. Dekle, Robert & Hsiao, Cheng & Wang, Siyan, 2002. "High Interest Rates and Exchange Rate Stabilization in Korea, Malaysia, and Thailand: An Empirical Investigation of the Traditional and Revisionist Views," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 64-78, February.
  19. Jeanne, Olivier, 1999. "Currency Crises: A Perspective on Recent Theoretical Developments," CEPR Discussion Papers 2170, C.E.P.R. Discussion Papers.
  20. Rajan, Ramkishen S. & Shen, Chung-Hua, 2006. "Why Are Crisis-Induced Devaluations Contractionary? Exploring Alternative Hypotheses," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 526-550.
  21. Rudi Dornbusch, 2001. "A Primer on Emerging Market Crises," NBER Working Papers 8326, National Bureau of Economic Research, Inc.
  22. Aizenman, Joshua & Marion, Nancy, 2003. "The high demand for international reserves in the Far East: What is going on?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 370-400, September.
  23. Allan Drazen, 2003. "Interest Rate Defense against Speculative Attack as a Signal. A Primer," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 37-60 National Bureau of Economic Research, Inc.
  24. Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department.
  25. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
  26. Amartya Lahiri & Carlos A. Vegh, 2001. "Living with the Fear of Floating: An Optimal Policy Perspective," NBER Working Papers 8391, National Bureau of Economic Research, Inc.
  27. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  28. Forbes, Kristin, 2002. "How Do Large Depreciations Affect Firm Performance?," Working papers 4379-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  29. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "A simple model of monetary policy and currency crises," European Economic Review, Elsevier, vol. 44(4-6), pages 728-738, May.
  30. Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, World Bank Group, vol. 15(1), pages 23-46, February.
  31. Taimur Baig & Ilan Goldfajn, 1998. "Monetary Policy in the Aftermath of Currency Crisis; The Case of Asia," IMF Working Papers 98/170, International Monetary Fund.
  32. Thomas D. Willett, 2002. "Why Is There So Much Disagreement About the IMF and Reform of the International Financial Architecture?," Claremont Colleges Working Papers 2002-20, Claremont Colleges.
  33. Michael P. Dooley, 1997. "A Model of Crises in Emerging Markets," NBER Working Papers 6300, National Bureau of Economic Research, Inc.
  34. Ariel Burstein & Martin Eichenbaum & Sergio T. Rebelo, 2002. "Why Are Rates of Inflation So Low After Large Devaluations?," RCER Working Papers 486, University of Rochester - Center for Economic Research (RCER).
  35. Reuven Glick & Ramon Moreno & Mark Spiegel, 2001. "Financial crises in emerging markets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar.23.
  36. Peter J. Montiel, 2003. "Tight Money in a Post-Crisis Defense of the Exchange Rate: What Have We Learned?," World Bank Research Observer, World Bank Group, vol. 18(1), pages 1-23.
  37. Graham Bird & Ramkishen S. Rajan, 2001. "Banks, Financial Liberalisation and Financial Crises in Emerging Markets," The World Economy, Wiley Blackwell, vol. 24(7), pages 889-910, 07.
  38. Reuven Glick & Michael Hutchison, 1999. "Banking and currency crises: how common are twins?," Pacific Basin Working Paper Series 99-07, Federal Reserve Bank of San Francisco.
  39. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
  40. J. Saul Lizondo & Peter J. Montiel, 1989. "Contractionary Devaluation in Developing Countries: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 182-227, March.
  41. Ramikishen Rajan, 2002. "Exchange Rate Policy Options for Post-crisis Southeast Asia: Is There a Case for Currency Baskets?," The World Economy, Wiley Blackwell, vol. 25(1), pages 137-163, 01.
  42. Melvyn Weeks & Mark R. Stone, 2001. "Systemic Financial Crises, Balance Sheets, and Model Uncertainity," IMF Working Papers 01/162, International Monetary Fund.
  43. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  44. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2003. "Why is Inflation so Low after Large Devaluations?," IEHAS Discussion Papers 0308, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  45. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  46. Ramkishen Rajan & Graham Bird, 2001. "Economic Globalisation," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(3), pages 1-18, July.
  47. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  48. Graham Bird & Ramkishen Rajan, 2002. "The Evolving Asian Financial Architecture," Centre for International Economic Studies Working Papers 2002-03, University of Adelaide, Centre for International Economic Studies.
  49. Timothy D. Lane & A. Javier Hamann & Marianne Schulze-Gattas & Ales Bulir & Steven Phillips & Atish R. Ghosh & Alex Mourmouras & Jack Boorman, 2000. "Managing Financial Crises; The Experience in East Asia," IMF Working Papers 00/107, International Monetary Fund.
  50. Drazen, Allan & Hubrich, Stefan, 2003. "Mixed Signals in Defending the Exchange Rate: What do the Data Say?," CEPR Discussion Papers 4050, C.E.P.R. Discussion Papers.
  51. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  52. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
  53. Peter S. Heller, 1997. "Fiscal Policy Management in an Open Capital Regime," IMF Working Papers 97/20, International Monetary Fund.
  54. repec:cup:cbooks:9780521800204 is not listed on IDEAS
  55. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  56. Atish R. Ghosh & Gabriela Basurto, 2000. "The Interest Rate-Exchange Rate Nexus in the Asian Crisis Countries," IMF Working Papers 00/19, International Monetary Fund.
  57. Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000. "Balance Sheets and Exchange Rate Policy," NBER Working Papers 7840, National Bureau of Economic Research, Inc.
  58. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
  59. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  60. Manuel De la Rocha & Roberto Perrelli & Christian B. Mulder, 2002. "The Role of Corporate, Legal and Macroeconomic Balance Sheet Indicators in Crisis Detection and Prevention," IMF Working Papers 02/59, International Monetary Fund.
  61. Brad Setser & Nouriel Roubini & Christian Keller & Mark Allen & Christoph B. Rosenberg, 2002. "A Balance Sheet Approach to Financial Crisis," IMF Working Papers 02/210, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:wly:jintdv:v:19:y:2007:i:5:p:583-606. 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: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.