Macro prudential supervision in the open economy, and the role of central banks in emerging markets

Joshua Aizenman

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

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 languageEnglish
Pages (from-to)465-482
Number of pages18
JournalOpen Economies Review
Volume21
Issue number3
DOIs
StatePublished - 1 Jul 2010
Externally publishedYes

Keywords

  • Congestion externalities
  • Deleveraging
  • External debt management
  • Prudential supervision

ASJC Scopus subject areas

  • Economics and Econometrics

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