Balance of Payments Anti-Crises

Isabel Yan and Michael Kumhof

No 2009/134, IMF Working Papers from International Monetary Fund

Abstract: Several emerging economies have, until recently, experienced large government surpluses and accelerating foreign exchange reserve accumulation. This has been accompanied by economic booms, exchange rate appreciations and in some cases increases in domestic inflation. We show that one way to understand these episodes is as manifestations of balance of payments anti-crises, as reflecting the perception that the government intends to discontinue its accumulation of reserves in the near future. The end-phase of such crises is characterized by nominal interest rates approaching their zero lower bound in accelerating fashion and, if the government targets CPI inflation, by fast increasing domestic inflation.

Keywords: WP; central bank; foreign exchange; Balance of payments anti-crises; foreign exchange reserves; inflation dynamics; CPI inflation targeting; rate of exchange rate depreciation; price level; exchange rate targeting; exchange rate appreciation; Inflation targeting; Exchange rates; Inflation; International reserves; Reserves accumulation; Global (search for similar items in EconPapers)
Pages: 22
Date: 2009-06-01
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Journal Article: Balance-of-payments anti-crises (2016)
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