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“Original Sin,” Balance Sheet Crises, and the Roles of International Lending

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  • Mr. Olivier D Jeanne
  • Mr. Jeromin Zettelmeyer

Abstract

We present a stylized framework which encompasses a variety of "balance sheet approaches" to currency crises that have been suggested in the literature, and analyze their policy implications. The common theme is that currency and maturity mismatches in private sector balance sheets constrain the capacity of monetary and fiscal policies to deal with self-fulfilling capital account crises, and generate a role for international crisis lending. International lending could be used to back domestic last-resort lending to banks, or to loosen fiscal constraints. Provided they have a sound fiscal position in normal times, this can make countries immune to self-fulfilling crises.

Suggested Citation

  • Mr. Olivier D Jeanne & Mr. Jeromin Zettelmeyer, 2002. "“Original Sin,” Balance Sheet Crises, and the Roles of International Lending," IMF Working Papers 2002/234, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2002/234
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    References listed on IDEAS

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    9. Olivier Jeanne & Charles Wyplosz, 2003. "The International Lender of Last Resort. How Large Is Large Enough?," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 89-124, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Jeffrey Frankel, 2005. "Contractionary Currency Crashes In Developing Countries," CID Working Papers 117, Center for International Development at Harvard University.
    2. Jose Luiz Rossi Junior, 2004. "Foreign Exchange exposure, corporate financial policies and the exchange rate regime: Evidence from Brazil," Econometric Society 2004 Latin American Meetings 163, Econometric Society.
    3. Eijffinger Sylvester C. W. & Goderis Benedikt, 2007. "Currency Crises, Monetary Policy and Corporate Balance Sheets," German Economic Review, De Gruyter, vol. 8(3), pages 309-343, August.
    4. Daianu, Daniel & Kallai, Ella, 2008. "Disinflation and Inflation Targeting in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 59-81, March.
    5. Vincent Bouvatier, 2006. "Hot Money Inflows in China: How the People's Bank of China Took up the Challenge," Post-Print halshs-00111153, HAL.
    6. Mario Draghi & Francesco Giavazzi & Robert C. Merton, 2003. "Transparency, Risk Management and International Financial Fragility," NBER Working Papers 9806, National Bureau of Economic Research, Inc.
    7. Cheng, Gong, 2015. "Balance sheet effects, foreign reserves and public policies," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 146-165.
    8. Brad Setser & Ioannis Halikias & Alexander Pitt & Christoph B. Rosenberg & Brett E. House & Jens Nystedt & Christian Keller, 2005. "Debt-Related Vulnerabilities and Financial Crises," IMF Occasional Papers 240, International Monetary Fund.
    9. Batista, Blessica, 2018. "Identifying the symptoms of financial crises," MPRA Paper 91559, University Library of Munich, Germany.
    10. Javier Guillermo Gómez, 2006. "Capital Flows and Monetary Policy," BORRADORES DE ECONOMIA 002097, BANCO DE LA REPÚBLICA.
    11. Agliardi, Elettra & Agliardi, Rossella & Pinar, Mehmet & Stengos, Thanasis & Topaloglou, Nikolas, 2012. "A new country risk index for emerging markets: A stochastic dominance approach," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 741-761.
    12. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.
    13. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 1. Drivers of Systemic Banking Crises: The Role of Bank-Balance-Sheet Contagion and Financial Account Structure," OECD Economics Department Working Papers 902, OECD Publishing.
    14. Lindner, Axel, 2006. "Original Sin - Analysing Its Mechanics and a proposed Remedy in a Simple Macroeconomic Model," IWH Discussion Papers 11/2006, Halle Institute for Economic Research (IWH).
    15. Besancenot, Damien & Vranceanu, Radu, 2004. "Excessive Liability Dollarization in a Simple Signaling Model," ESSEC Working Papers DR 04001, ESSEC Research Center, ESSEC Business School.
    16. repec:imf:imfops:240 is not listed on IDEAS

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    More about this item

    Keywords

    WP; balance sheet; monetary policy; credit crunch; interest rate;
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