Smoothing sudden stops
By: Ricardo J. Caballero [and] Arvind Krishnamurthy
Contributors: Krishnamurthy, Arvind; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 01-26; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 01-26.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2001
Place of publication: Cambridge, MA
Language: eng
Number of pages: 24
Description: Emerging economies are exposed to severe and sudden shortages of international financial resources. Yet domestic agents seem not to undertake enough precautions against these sudden stops. Following our previous work, we highlight in this paper the central role played by limited domestic development in ex-ante (insurance) and ex-post (spot) financial markets in generating this collective undervaluation of external resources and insurance. Within this structure, this paper studies several canonical policies to counteract the external underinsurance. We do this by first solving for the optimal mechanism given the constraints imposed by limited domestic financial development, and then considering the main - in terms of the model and practical relevance - implementations of this mechanism. Keywords: External Shocks, domestic and international collateral, underinsurance, credit lines, liquidity requirements, asset market intervention.
Notes: Title from cover.

"July 5, 2001."

Includes bibliographical references (p. 23-24).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.