A Balance Sheet Approach to Financial Crisis

Author/Editor:

Brad Setser ; Nouriel Roubini ; Christian Keller ; Mark Allen ; Christoph B. Rosenberg

Publication Date:

December 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper lays out an analytical framework for understanding crises in emerging markets based on examination of stock variables in the aggregate balance sheet of a country and the balance sheets of its main sectors (assets and liabilities). It focuses on the risks created by maturity, currency, and capital structure mismatches. This framework draws attention to the vulnerabilities created by debts among residents, particularly those denominated in foreign currency, and it helps to explain how problems in one sector can spill over into other sectors, eventually triggering an external balance of payments crisis. The paper also discusses the potential of macroeconomic policies and official intervention to mitigate the cost of such a crisis.

Series:

Working Paper No. 2002/210

Subject:

Currencies Currency mismatches Exchange rates External debt Financial crises Financial statements Foreign exchange Money Public financial management (PFM)

Notes:

See also: The Balance Sheet Approach and its Applications at the Fund, June 30, 2003

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451957150/1018-5941

Stock No:

WPIEA2102002

Pages:

63

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