In most of the currency crises of the 1990s, the largest output falls have occurred in those emerging economies with large currency mismatches, a phenomenon that occurs when assets and liabilities are denominated in different currencies such that net worth is sensitive to changes in the exchange rate. Currency mismatching makes crisis management much more difficult since it constrains the willingness of the monetary authority to reduce interest rates in a recession (for fear of initiating a large fall in the currency that would bring with it large-scale insolvencies). The mismatching also produces a "fear of floating" on the part of emerging economies, sometimes inducing them to make currency-regime choices that are not in their own long-term interest. Morris Goldstein and Philip Turner summarize what is known about the origins of currency mismatching in emerging economies, discuss how best to define and measure currency mismatching, and review policy options for reducing the size of the problem.
- Cover
- Contents
- Preface
- Acknowledgments
- Chapter 1 Introduction
- Original Sin Hypothesis
- Plan of the Book
- Chapter 2 Why Currency Mismatches Matter
- Chapter 3 Measuring Currency Mismatch: Beyond Original Sin
- Original Sin: A Misleading Measure
- Summary
- Chapter 4 Aggregate Effective Currency Mismatch
- New Measure of Aggregate Effective Currency Mismatch
- Modification of AECM
- Chapter 5 Coping with Potential Currency Mismatches
- Chapter 6 Role of National Macroeconomic Policies and Currency Regimes
- Monetary Policy and Inflation
- Currency Regime
- Fiscal Policies
- Debt and Reserve Management Policies
- Chapter 7 Role of Institutional Factors and Microeconomic Incentives
- Bond Markets
- Prudential Oversight of Financial Institutions
- Regulation of Banks in Major Lending Centers
- Regulation of Banks in Borrowing Countries
- Aggregate Mismatches in the Banking System
- Regulations of Other Financial Institutions
- Rules for Nonfinancial Corporations?
- Chapter 8 International Solutions to Currency Mismatching?
- Chapter 9 Reducing Currency Mismatching: A Domestic Agenda
- Appendix A Measuring Mismatches: Some Cautionary Notes
- Appendix B Evolution of the Original Sin Hypothesis
- References
- Index
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