Conventional and Insidious Macroeconomic Balance-Sheet Crises

41 Pages Posted: 10 Sep 2014

See all articles by Bas Berend Bakker

Bas Berend Bakker

International Monetary Fund (IMF)

Leslie Lipschitz

IMF Institute

Date Written: August 2014

Abstract

This paper describes the anatomy of two types of balance-sheet macroeconomic crises. Conventional balance-sheet crises are triggered by external imbalances and balance sheet vulnerabilities. They typically occur after capital inflows have led to a substantial build up of foreign currency exposure. Insidious crises are triggered by internal imbalances and balance sheet vulnerabilities. They occur in high-growth economies when an initially equilibrating shift in relative prices and resources and credit in favor of the nontraded sector overshoots equilibrium. The paper argues that policymakers are now better able to forestall conventional crises, but they are much less capable of early detection and avoidance of insidious crises.

Keywords: Fiscal imbalances, Developed countries, Emerging markets, Capital account, Balance sheets, Financial crises, crises, business cycles, capital flows, capital inflows, exchange rate, real effective exchange rate, effective exchange rate, capital markets, current account deficit, real appreciation, foreign exchange, ppp, global capital markets, foreign capital, exchange rates, capital account crises, exchange rate policy, current account deficits, fixed exchange rates, net capital, foreign exchange reserves, current account balance, exchange reserves, exchange risk, net capital flows, capital inflow, crisis prevention, foreign capital inflows, capital controls, capital control, moral hazard, fl

JEL Classification: E20, E30, F20, F3, F4, F60

Suggested Citation

Bakker, Bas Berend and Lipschitz, Leslie, Conventional and Insidious Macroeconomic Balance-Sheet Crises (August 2014). IMF Working Paper No. 14/160, Available at SSRN: https://ssrn.com/abstract=2494329

Bas Berend Bakker (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Leslie Lipschitz

IMF Institute ( email )

700 19th St. NW
Washington, DC 20431
United States
202-623-8866 (Phone)

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