College of Behavioral & Social Sciences
Permanent URI for this communityhttp://hdl.handle.net/1903/8
The collections in this community comprise faculty research works, as well as graduate theses and dissertations..
Browse
5 results
Search Results
Item On Dollarization(1999-04-20) Calvo, Guillermo A.Recent worldwide turmoil in financial markets is triggering a major revision of the conventional wisdom about Emerging Market countries’ (EMs) macroeconomic management. As a result, the debate is wide open as to the set of policies and institutional arrangements that would ensure EMs’ macroeconomic stability. Opinions range from those favoring further pursuing market-friendly reforms to controls on capital mobility and even trade, and from dollarization to floating exchange rates. The debate on the appropriate exchange rate system, in particular, has taken center-stage.Item Fear of Floating(2000-09-25) Calvo, Guillermo A.; Reinhart, Carmen M.In recent years, many countries have suffered severe financial crises, producing a staggering toll on their economies, particularly in emerging markets. One view blames fixed exchange rates-- “soft pegs”--for these meltdowns. Adherents to that view advise countries to allow their currency to float. We analyze the behavior of exchange rates, reserves, the monetary aggregates, interest rates, and commodity prices across 154 exchange rate arrangements to assess whether “official labels” provide an adequate representation of actual country practice. We find that, countries that say they allow their exchange rate to float mostly do not--there seems to be an epidemic case of “fear of floating.” Since countries that are classified as having a free or a managed float mostly resemble noncredible pegs--the so-called “demise of fixed exchange rates” is a myth--the fear of floating is pervasive, even among some of the developed countries. We present an analytical framework that helps to understand why there is fear of floating.Item When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options(1999-06-29) Calvo, Guillermo A.; Reinhart, Carmen M.In this paper we present evidence that capital account reversals have become more severe for emerging markets. Because policy options are limited in the midst of a capital market crisis and because so many countries have already had crises recently, we focus on some of the policies that could reduce the incidence of crises in the first place, or at least make the sudden stop problem less severe. In this regard, we consider the relative merits of capital controls and dollarization. We conclude that, while the evidence suggests that capital controls appear to influence the composition of flows skewing flows away from short maturities, such policies are not likely to be a long-run solution to the recurring problem of sudden capital flow reversals. Yet, because fear of floating, many emerging markets are likely to turn to increased reliance on controls. Dollarization would appear to have the edge as a more marketoriented option to ameliorate, if not eliminate, the sudden stop problem.Item Contagion in Emerging Markets: When Wall Street is a carrier(1999-05-02) Calvo, Guillermo A.The paper examines the case in which the capital market is populated by informed and uninformed investors. The uninformed try to extract information from informed investors’ trades. This opens up the possibility that if informed investors are forced to sell emerging market securities to meet margin calls, for example, this action may be misread by the uninformed investors as signaling low returns in emerging markets. The paper presents a simple model in which this type of Wall Street confusion may result in a collapse in emerging markets’ output.Item Balance of Payment Crises In Emerging Markets: Large Capital Inflows and Sovereign Governments(1998-03-15) Calvo, Guillermo A.The paper shows that the combination of large capital inflows and sovereign governments could give rise to self-fulfilling balance of payments crises. It argues that a current account deficit could impair the resolution of such crises, but the crises themselves could occur even though the current account was in balance. The key is a weak financial sector, possibly made so by an accommodating central bank. In contrast with most of the literature on this subject, the paper endogenizes output and discusses the channels (New Classical and Keynesian) through which a BOP crisis can result in output collapse. Building on a Time to Build model, the paper shows that a growth slowdown can take place even though a BOP crisis brings about no current account reversal.