Abstract
In this paper we explore lessons from the global liquidity crisis pertaining to the prudential supervision role of central bank in an open economy. The crisis validates the need for external debt management policy in emerging markets. Hoarding international reserves (IR) is a potent self-insurance mechanism. However, it is associated with relatively high costs and is also less efficient in absence of assertive external debt management policies. In the presence of congestion externalities associated with deleveraging, optimal external borrowing-tax-cum-IR-hoarding-subsidy reduces the cost as well as the scale of hoarding IR.
Original language | English |
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Pages (from-to) | 465-482 |
Number of pages | 18 |
Journal | Open Economies Review |
Volume | 21 |
Issue number | 3 |
DOIs | |
State | Published - 1 Jul 2010 |
Externally published | Yes |
Keywords
- Congestion externalities
- Deleveraging
- External debt management
- Prudential supervision
ASJC Scopus subject areas
- Economics and Econometrics