Internal Versus External Convertibility and Developing-country Financial Crises PDF Download
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Author: Gerardo Della Paolera
Publisher:
ISBN:
Category : Argentina
Languages : en
Pages : 44
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Book Description
Argentina's money and banking system was hit hard by the Great Depression. The banking sector was awash with bad assets that built up in the 1920's. Gold convertibility was suspended in December 1929, even before the crisis seriously damaged the core economies. Commonly, these events are seen as being driven by external real shocks associated with the World Depression, despite the puzzle of the timing. We argue for an alternative, or complementary, explanation of the crisis that focuses on the inside-outside money relationship in a system of fractional-reserve banking and gold-standard rules. This internal explanation for the crisis involves no timing puzzle. The tension between internal and external convertibility can be felt when banks fall into bad times, and an internal drain can feed an external drain. Such was the case after financial fragility appeared in the 1914-27 suspension. Resumption in 1928 was probably unsustainable due to the problems of the financial system, and a dynamic model illustrates the point well. The resolution of the crisis required lender-of-last-resort actions by the state, discharged at first by the state bank issuing rediscounts to private banks. When the state bank became insolvent, the currency board started bailing out the system using high-powered money. Thus came about the demise of the currency board and the creation of a central bank in 1935, an institution that had no pretense of a nominal- anchor commitment device and no ceiling on lender-of-last-resort actions-innovations with painful long-run consequences for inflation performance and financial-sector health. As one of its first substantive actions, the central bank engineered a bailout of the banking system at a massive social cost. The parallels with recent developing-country crises are remarkable, and the implications for the institutional design of monetary and banking systems are considered.
Author: Gerardo Della Paolera
Publisher:
ISBN:
Category : Argentina
Languages : en
Pages : 44
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Book Description
Argentina's money and banking system was hit hard by the Great Depression. The banking sector was awash with bad assets that built up in the 1920's. Gold convertibility was suspended in December 1929, even before the crisis seriously damaged the core economies. Commonly, these events are seen as being driven by external real shocks associated with the World Depression, despite the puzzle of the timing. We argue for an alternative, or complementary, explanation of the crisis that focuses on the inside-outside money relationship in a system of fractional-reserve banking and gold-standard rules. This internal explanation for the crisis involves no timing puzzle. The tension between internal and external convertibility can be felt when banks fall into bad times, and an internal drain can feed an external drain. Such was the case after financial fragility appeared in the 1914-27 suspension. Resumption in 1928 was probably unsustainable due to the problems of the financial system, and a dynamic model illustrates the point well. The resolution of the crisis required lender-of-last-resort actions by the state, discharged at first by the state bank issuing rediscounts to private banks. When the state bank became insolvent, the currency board started bailing out the system using high-powered money. Thus came about the demise of the currency board and the creation of a central bank in 1935, an institution that had no pretense of a nominal- anchor commitment device and no ceiling on lender-of-last-resort actions-innovations with painful long-run consequences for inflation performance and financial-sector health. As one of its first substantive actions, the central bank engineered a bailout of the banking system at a massive social cost. The parallels with recent developing-country crises are remarkable, and the implications for the institutional design of monetary and banking systems are considered.
Author: Gerardo della Paolera
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
Argentina's money and banking system was hit hard by the Great Depression. The banking sector was awash with bad assets that built up in the 1920's. Gold convertibility was suspended in December 1929, even before the crisis seriously damaged the core economies. Commonly, these events are seen as being driven by external real shocks associated with the World Depression, despite the puzzle of the timing. We argue for an alternative, or complementary, explanation of the crisis that focuses on the inside-outside money relationship in a system of fractional-reserve banking and gold-standard rules. This internal explanation for the crisis involves no timing puzzle. The tension between internal and external convertibility can be felt when banks fall into bad times, and an internal drain can feed an external drain. Such was the case after financial fragility appeared in the 1914-27 suspension. Resumption in 1928 was probably unsustainable due to the problems of the financial system, and a dynamic model illustrates the point well. The resolution of the crisis required lender-of-last-resort actions by the state, discharged at first by the state bank issuing rediscounts to private banks. When the state bank became insolvent, the currency board started bailing out the system using high-powered money. Thus came about the demise of the currency board and the creation of a central bank in 1935, an institution that had no pretense of a nominal- anchor commitment device and no ceiling on lender-of-last-resort actions-innovations with painful long-run consequences for inflation performance and financial-sector health. As one of its first substantive actions, the central bank engineered a bailout of the banking system at a massive social cost. The parallels with recent developing-country crises are remarkable, and the implications for the institutional design of monetary and banking systems are considered.
Author: Gerardo della Paolera
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Argentina's once strong money and banking system deteriorated in the 1920s and was devastated by the Great Depression. Gold convertibility was suspended in December 1929, even before the crisis seriously damaged the core economies. Commonly, these events are seen as being driven by external real shocks associated with the World Depression, despite the puzzle of the timing. We argue for an alternative, or complementary, explanation of the crisis that focuses on the inside-outside money relationship in a system of fractional-reserve banking and gold-standard rules. This internal explanation for the crisis involves no timing puzzle. The tension between internal and external convertibility can be felt when banks fall into bad times, and an internal drain can feed an external drain. Such was the case after financial fragility appeared in the 1914-27 suspension. Resumption in 1927 was probably unsustainable due to the problems of the financial system, and a dynamic model illustrates the point well. The resolution of the crisis required Lender-of-Last-Resort actions by the state, discharged at first by the state bank. When the state bank became insolvent, the currency board started bailing out the system using high-powered money. Thus came about the demise of the currency board and the creation of a central bank in 1935, an institution that had no pretense of a nominal-anchor commitment device and no ceiling on Lender-of-Last-Resort actions - innovations with painful long-run consequences for inflation performance and financial-sector health. The parallels with recent developing-country crises, not least the current Argentine dilemma, are remarkable, and the implications for the institutional design of monetary and banking systems are considered.
Author: Gerardo della Paolera
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
Author: Mr.Stijn Claessens
Publisher: International Monetary Fund
ISBN: 1475561008
Category : Business & Economics
Languages : en
Pages : 66
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Book Description
This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Author: Carl-Johan Lindgren
Publisher:
ISBN: 9781557758712
Category : Business & Economics
Languages : en
Pages : 103
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Book Description
An IMF paper reviewing the policy responses of Indonesia, Korea and Thailand to the 1997 Asian crisis, comparing the actions of these three countries with those of Malaysia and the Philippines. Although all judgements are still tentative, important lessons can be learned from the experiences of the last two years.
Author: M. Ayhan Kose
Publisher: World Bank Publications
ISBN: 1464815453
Category : Business & Economics
Languages : en
Pages : 403
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Book Description
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Author: Mr.Stijn Claessens
Publisher: International Monetary Fund
ISBN: 1484355261
Category : Business & Economics
Languages : en
Pages : 754
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Book Description
The lingering effects of the economic crisis are still visible—this shows a clear need to improve our understanding of financial crises. This book surveys a wide range of crises, including banking, balance of payments, and sovereign debt crises. It begins with an overview of the various types of crises and introduces a comprehensive database of crises. Broad lessons on crisis prevention and management, as well as the short-term economic effects of crises, recessions, and recoveries, are discussed.
Author: Gerardo della Paolera
Publisher: University of Chicago Press
ISBN: 0226645584
Category : Business & Economics
Languages : en
Pages : 296
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Book Description
The "Argentine disappointment"—why Argentina persistently failed to achieve sustained economic stability during the twentieth century—is an issue that has mystified scholars for decades. In Straining the Anchor, Gerardo della Paolera and Alan M. Taylor provide many of the missing links that help explain this important historical episode. Written chronologically, this book follows the various fluctuations of the Argentine economy from its postrevolutionary volatility to a period of unprecedented prosperity to a dramatic decline from which the country has never fully recovered. The authors examine in depth the solutions that Argentina has tried to implement such as the Caja de Conversión, the nation's first currency board which favored a strict gold-standard monetary regime, the forerunner of the convertibility plan the nation has recently adopted. With many countries now using—or seriously contemplating—monetary arrangements similar to Argentina's, this important and persuasive study maps out one of history's most interesting monetary experiments to show what works and what doesn't.
Author: Carmen M. Reinhart
Publisher: Princeton University Press
ISBN: 0691152640
Category : Business & Economics
Languages : en
Pages : 513
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Book Description
An empirical investigation of financial crises during the last 800 years.
