Reducing Vulnerability to Speculative Attacks
The note focuses on the speculative attack on domestic assets, which can occur irrespective of country's fiscal situation, suggesting political economy considerations may be the reason. However, recent events have reopened the debate on how to reduce vulnerability to capital outflows in developing countries, though other risk factors have been identified, which if minimized, can still reduce vulnerability to speculative attacks. It addresses the perils of inconsistent macroeconomic policies, as evidenced in Argentina, where the Central Bank was financing the government's budget deficit by creating money, while trying to keep the exchange rate fixed. Moreover, a speculative attack on bonds, instead of currency, can also lead to a devaluation, such as a sudden shift in perceptions about macroeconomic stability, may lead to a loss in reserves, as in Mexico's 1994 crisis, when high interest rates associated with a currency defense was perceived as intolerable. This is substantiated through case studies, which further include the expectation of realized contingent liabilities, a drop in tax revenues associated with business cycles driven by capital inflows, and investor refusal to roll over debt in countries other than the crisis country, know as contagion. Recommendations include the adoption of consistent macroeconomic policies; reduction of debt rollover risks; strengthening financial regulation; and, capital flows regulation.
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dig-okr-10986114972024-08-08T18:05:53Z Reducing Vulnerability to Speculative Attacks Como reducir la vulnerabilidad frente a los ataques especulativos? Calvo, Sara BALANCE OF PAYMENTS BANK LIQUIDITY BANK RUNS BANKING CRISIS BONDS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CONTAGION CONTINGENT LIABILITIES CURRENCY CRISES DEBT DEBT FINANCING DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC CREDIT ECONOMIC POLICY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORTS FINANCIAL CRISES FINANCIAL INSTITUTIONS FINANCIAL SECTOR FIXED EXCHANGE RATE FIXED EXCHANGE RATES FLOATING EXCHANGE RATE FOREIGN CURRENCY GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT IMPORTS INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUID LIABILITIES LIQUIDITY M2 MACROECONOMIC POLICIES MONEY DEMAND POLITICAL ECONOMY POLITICAL SUPPORT POVERTY REDUCTION REAL EXCHANGE REAL EXCHANGE RATE RESERVE REQUIREMENTS SHORT-TERM DEBT SOLVENCY SPECULATIVE ATTACKS TAX REVENUES VOLATILITY VULNERABILITY SPECULATION ASSET LIABILITY MANAGEMENT FISCAL MANAGEMENT ECONOMIC POLICY RISK MANAGEMENT VULNERABILITY MACROECONOMIC CORRELATIONS CASE STUDIES FINANCING OPTIONS BUDGET DEFICITS MONEY SUPPLY EXCHANGE RATE POLICY BOND RATINGS CURRENCY DEVALUATION FINANCIAL CRISES CONTINGENT LIABILITY TAX REVENUES BUSINESS CYCLES CAPITAL INFLOWS ROLLOVER ASSURANCES CONTAGION MACROECONOMIC POLICY DEBT SERVICE REDUCTION FINANCIAL REGULATION CAPITAL FLOWS REGULATORY FRAMEWORK The note focuses on the speculative attack on domestic assets, which can occur irrespective of country's fiscal situation, suggesting political economy considerations may be the reason. However, recent events have reopened the debate on how to reduce vulnerability to capital outflows in developing countries, though other risk factors have been identified, which if minimized, can still reduce vulnerability to speculative attacks. It addresses the perils of inconsistent macroeconomic policies, as evidenced in Argentina, where the Central Bank was financing the government's budget deficit by creating money, while trying to keep the exchange rate fixed. Moreover, a speculative attack on bonds, instead of currency, can also lead to a devaluation, such as a sudden shift in perceptions about macroeconomic stability, may lead to a loss in reserves, as in Mexico's 1994 crisis, when high interest rates associated with a currency defense was perceived as intolerable. This is substantiated through case studies, which further include the expectation of realized contingent liabilities, a drop in tax revenues associated with business cycles driven by capital inflows, and investor refusal to roll over debt in countries other than the crisis country, know as contagion. Recommendations include the adoption of consistent macroeconomic policies; reduction of debt rollover risks; strengthening financial regulation; and, capital flows regulation. 2012-08-13T15:13:49Z 2012-08-13T15:13:49Z 1999-02 http://documents.worldbank.org/curated/en/1999/02/828306/reducing-vulnerability-speculative-attacks https://hdl.handle.net/10986/11497 English PREM Notes; No. 16 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank application/pdf text/plain World Bank, Washington, DC |
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Banco Mundial |
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Estados Unidos |
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US |
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Bibliográfico |
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dig-okr |
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biblioteca |
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America del Norte |
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Biblioteca del Banco Mundial |
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English |
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BALANCE OF PAYMENTS BANK LIQUIDITY BANK RUNS BANKING CRISIS BONDS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CONTAGION CONTINGENT LIABILITIES CURRENCY CRISES DEBT DEBT FINANCING DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC CREDIT ECONOMIC POLICY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORTS FINANCIAL CRISES FINANCIAL INSTITUTIONS FINANCIAL SECTOR FIXED EXCHANGE RATE FIXED EXCHANGE RATES FLOATING EXCHANGE RATE FOREIGN CURRENCY GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT IMPORTS INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUID LIABILITIES LIQUIDITY M2 MACROECONOMIC POLICIES MONEY DEMAND POLITICAL ECONOMY POLITICAL SUPPORT POVERTY REDUCTION REAL EXCHANGE REAL EXCHANGE RATE RESERVE REQUIREMENTS SHORT-TERM DEBT SOLVENCY SPECULATIVE ATTACKS TAX REVENUES VOLATILITY VULNERABILITY SPECULATION ASSET LIABILITY MANAGEMENT FISCAL MANAGEMENT ECONOMIC POLICY RISK MANAGEMENT VULNERABILITY MACROECONOMIC CORRELATIONS CASE STUDIES FINANCING OPTIONS BUDGET DEFICITS MONEY SUPPLY EXCHANGE RATE POLICY BOND RATINGS CURRENCY DEVALUATION FINANCIAL CRISES CONTINGENT LIABILITY TAX REVENUES BUSINESS CYCLES CAPITAL INFLOWS ROLLOVER ASSURANCES CONTAGION MACROECONOMIC POLICY DEBT SERVICE REDUCTION FINANCIAL REGULATION CAPITAL FLOWS REGULATORY FRAMEWORK BALANCE OF PAYMENTS BANK LIQUIDITY BANK RUNS BANKING CRISIS BONDS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CONTAGION CONTINGENT LIABILITIES CURRENCY CRISES DEBT DEBT FINANCING DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC CREDIT ECONOMIC POLICY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORTS FINANCIAL CRISES FINANCIAL INSTITUTIONS FINANCIAL SECTOR FIXED EXCHANGE RATE FIXED EXCHANGE RATES FLOATING EXCHANGE RATE FOREIGN CURRENCY GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT IMPORTS INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUID LIABILITIES LIQUIDITY M2 MACROECONOMIC POLICIES MONEY DEMAND POLITICAL ECONOMY POLITICAL SUPPORT POVERTY REDUCTION REAL EXCHANGE REAL EXCHANGE RATE RESERVE REQUIREMENTS SHORT-TERM DEBT SOLVENCY SPECULATIVE ATTACKS TAX REVENUES VOLATILITY VULNERABILITY SPECULATION ASSET LIABILITY MANAGEMENT FISCAL MANAGEMENT ECONOMIC POLICY RISK MANAGEMENT VULNERABILITY MACROECONOMIC CORRELATIONS CASE STUDIES FINANCING OPTIONS BUDGET DEFICITS MONEY SUPPLY EXCHANGE RATE POLICY BOND RATINGS CURRENCY DEVALUATION FINANCIAL CRISES CONTINGENT LIABILITY TAX REVENUES BUSINESS CYCLES CAPITAL INFLOWS ROLLOVER ASSURANCES CONTAGION MACROECONOMIC POLICY DEBT SERVICE REDUCTION FINANCIAL REGULATION CAPITAL FLOWS REGULATORY FRAMEWORK |
| spellingShingle |
BALANCE OF PAYMENTS BANK LIQUIDITY BANK RUNS BANKING CRISIS BONDS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CONTAGION CONTINGENT LIABILITIES CURRENCY CRISES DEBT DEBT FINANCING DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC CREDIT ECONOMIC POLICY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORTS FINANCIAL CRISES FINANCIAL INSTITUTIONS FINANCIAL SECTOR FIXED EXCHANGE RATE FIXED EXCHANGE RATES FLOATING EXCHANGE RATE FOREIGN CURRENCY GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT IMPORTS INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUID LIABILITIES LIQUIDITY M2 MACROECONOMIC POLICIES MONEY DEMAND POLITICAL ECONOMY POLITICAL SUPPORT POVERTY REDUCTION REAL EXCHANGE REAL EXCHANGE RATE RESERVE REQUIREMENTS SHORT-TERM DEBT SOLVENCY SPECULATIVE ATTACKS TAX REVENUES VOLATILITY VULNERABILITY SPECULATION ASSET LIABILITY MANAGEMENT FISCAL MANAGEMENT ECONOMIC POLICY RISK MANAGEMENT VULNERABILITY MACROECONOMIC CORRELATIONS CASE STUDIES FINANCING OPTIONS BUDGET DEFICITS MONEY SUPPLY EXCHANGE RATE POLICY BOND RATINGS CURRENCY DEVALUATION FINANCIAL CRISES CONTINGENT LIABILITY TAX REVENUES BUSINESS CYCLES CAPITAL INFLOWS ROLLOVER ASSURANCES CONTAGION MACROECONOMIC POLICY DEBT SERVICE REDUCTION FINANCIAL REGULATION CAPITAL FLOWS REGULATORY FRAMEWORK BALANCE OF PAYMENTS BANK LIQUIDITY BANK RUNS BANKING CRISIS BONDS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CONTAGION CONTINGENT LIABILITIES CURRENCY CRISES DEBT DEBT FINANCING DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC CREDIT ECONOMIC POLICY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORTS FINANCIAL CRISES FINANCIAL INSTITUTIONS FINANCIAL SECTOR FIXED EXCHANGE RATE FIXED EXCHANGE RATES FLOATING EXCHANGE RATE FOREIGN CURRENCY GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT IMPORTS INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUID LIABILITIES LIQUIDITY M2 MACROECONOMIC POLICIES MONEY DEMAND POLITICAL ECONOMY POLITICAL SUPPORT POVERTY REDUCTION REAL EXCHANGE REAL EXCHANGE RATE RESERVE REQUIREMENTS SHORT-TERM DEBT SOLVENCY SPECULATIVE ATTACKS TAX REVENUES VOLATILITY VULNERABILITY SPECULATION ASSET LIABILITY MANAGEMENT FISCAL MANAGEMENT ECONOMIC POLICY RISK MANAGEMENT VULNERABILITY MACROECONOMIC CORRELATIONS CASE STUDIES FINANCING OPTIONS BUDGET DEFICITS MONEY SUPPLY EXCHANGE RATE POLICY BOND RATINGS CURRENCY DEVALUATION FINANCIAL CRISES CONTINGENT LIABILITY TAX REVENUES BUSINESS CYCLES CAPITAL INFLOWS ROLLOVER ASSURANCES CONTAGION MACROECONOMIC POLICY DEBT SERVICE REDUCTION FINANCIAL REGULATION CAPITAL FLOWS REGULATORY FRAMEWORK Calvo, Sara Reducing Vulnerability to Speculative Attacks |
| description |
The note focuses on the speculative
attack on domestic assets, which can occur irrespective of
country's fiscal situation, suggesting political
economy considerations may be the reason. However, recent
events have reopened the debate on how to reduce
vulnerability to capital outflows in developing countries,
though other risk factors have been identified, which if
minimized, can still reduce vulnerability to speculative
attacks. It addresses the perils of inconsistent
macroeconomic policies, as evidenced in Argentina, where the
Central Bank was financing the government's budget
deficit by creating money, while trying to keep the exchange
rate fixed. Moreover, a speculative attack on bonds, instead
of currency, can also lead to a devaluation, such as a
sudden shift in perceptions about macroeconomic stability,
may lead to a loss in reserves, as in Mexico's 1994
crisis, when high interest rates associated with a currency
defense was perceived as intolerable. This is substantiated
through case studies, which further include the expectation
of realized contingent liabilities, a drop in tax revenues
associated with business cycles driven by capital inflows,
and investor refusal to roll over debt in countries other
than the crisis country, know as contagion. Recommendations
include the adoption of consistent macroeconomic policies;
reduction of debt rollover risks; strengthening financial
regulation; and, capital flows regulation. |
| topic_facet |
BALANCE OF PAYMENTS BANK LIQUIDITY BANK RUNS BANKING CRISIS BONDS BUDGET DEFICIT BUDGET DEFICITS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL INFLOWS CAPITAL OUTFLOWS CENTRAL BANK CONTAGION CONTINGENT LIABILITIES CURRENCY CRISES DEBT DEBT FINANCING DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC CREDIT ECONOMIC POLICY EQUILIBRIUM EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORTS FINANCIAL CRISES FINANCIAL INSTITUTIONS FINANCIAL SECTOR FIXED EXCHANGE RATE FIXED EXCHANGE RATES FLOATING EXCHANGE RATE FOREIGN CURRENCY GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT IMPORTS INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUID LIABILITIES LIQUIDITY M2 MACROECONOMIC POLICIES MONEY DEMAND POLITICAL ECONOMY POLITICAL SUPPORT POVERTY REDUCTION REAL EXCHANGE REAL EXCHANGE RATE RESERVE REQUIREMENTS SHORT-TERM DEBT SOLVENCY SPECULATIVE ATTACKS TAX REVENUES VOLATILITY VULNERABILITY SPECULATION ASSET LIABILITY MANAGEMENT FISCAL MANAGEMENT ECONOMIC POLICY RISK MANAGEMENT VULNERABILITY MACROECONOMIC CORRELATIONS CASE STUDIES FINANCING OPTIONS BUDGET DEFICITS MONEY SUPPLY EXCHANGE RATE POLICY BOND RATINGS CURRENCY DEVALUATION FINANCIAL CRISES CONTINGENT LIABILITY TAX REVENUES BUSINESS CYCLES CAPITAL INFLOWS ROLLOVER ASSURANCES CONTAGION MACROECONOMIC POLICY DEBT SERVICE REDUCTION FINANCIAL REGULATION CAPITAL FLOWS REGULATORY FRAMEWORK |
| author |
Calvo, Sara |
| author_facet |
Calvo, Sara |
| author_sort |
Calvo, Sara |
| title |
Reducing Vulnerability to Speculative Attacks |
| title_short |
Reducing Vulnerability to Speculative Attacks |
| title_full |
Reducing Vulnerability to Speculative Attacks |
| title_fullStr |
Reducing Vulnerability to Speculative Attacks |
| title_full_unstemmed |
Reducing Vulnerability to Speculative Attacks |
| title_sort |
reducing vulnerability to speculative attacks |
| publisher |
World Bank, Washington, DC |
| publishDate |
1999-02 |
| url |
http://documents.worldbank.org/curated/en/1999/02/828306/reducing-vulnerability-speculative-attacks https://hdl.handle.net/10986/11497 |
| work_keys_str_mv |
AT calvosara reducingvulnerabilitytospeculativeattacks AT calvosara comoreducirlavulnerabilidadfrentealosataquesespeculativos |
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1807159364954357760 |