A Balance Sheet Approach to Financial Crisis

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International Monetary Fund, Dec 1, 2002 - Business & Economics - 63 pages
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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.
 

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Contents

Summary
4
I Introduction
9
Boxes
10
II The Anatomy of Balance Sheet Crises
12
Figure
14
III Implications for Crisis Prevention and Fund Policy Advice During Crises
23
IV The Role of Official External Financing
33
V Conclusion
42
Annex I
44
Annex I Figure
45
Annex II
50
Annex II Figures
51
Annex II Tables
55
References
60
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