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Balance of Payments Anti-Crises

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  • Isabel K. Yan
  • Mr. Michael Kumhof

Abstract

Several emerging economies have, until recently, experienced large government surpluses and accelerating foreign exchange reserve accumulation. This has been accompanied by economic booms, exchange rate appreciations and in some cases increases in domestic inflation. We show that one way to understand these episodes is as manifestations of balance of payments anti-crises, as reflecting the perception that the government intends to discontinue its accumulation of reserves in the near future. The end-phase of such crises is characterized by nominal interest rates approaching their zero lower bound in accelerating fashion and, if the government targets CPI inflation, by fast increasing domestic inflation.

Suggested Citation

  • Isabel K. Yan & Mr. Michael Kumhof, 2009. "Balance of Payments Anti-Crises," IMF Working Papers 2009/134, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/134
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    More about this item

    Keywords

    WP; central bank; foreign exchange; Balance of payments anti-crises; foreign exchange reserves; inflation dynamics; CPI inflation targeting; rate of exchange rate depreciation; price level; exchange rate targeting; exchange rate appreciation; Inflation targeting; Exchange rates; Inflation; International reserves; Reserves accumulation; Global;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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