“Original Sin,” Balance Sheet Crises, and the Roles of International Lending

By Jeromin Zettelmeyer, Olivier D Jeanne

December 1, 2002

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Jeromin Zettelmeyer, and Olivier D Jeanne. “Original Sin,” Balance Sheet Crises, and the Roles of International Lending, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We present a stylized framework which encompasses a variety of "balance sheet approaches" to currency crises that have been suggested in the literature, and analyze their policy implications. The common theme is that currency and maturity mismatches in private sector balance sheets constrain the capacity of monetary and fiscal policies to deal with self-fulfilling capital account crises, and generate a role for international crisis lending. International lending could be used to back domestic last-resort lending to banks, or to loosen fiscal constraints. Provided they have a sound fiscal position in normal times, this can make countries immune to self-fulfilling crises.

Subject: Banking, Credit, Exchange rate arrangements, Exchange rates, Financial statements

Keywords: Balance sheet, Credit crunch, Interest rate, Monetary policy, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/234
Stock No:

WPIEA2342002
ISBN:

9781451875638
ISSN:

1018-5941

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