Tesis para optar al grado de Magíster en Economía / Autor no autoriza el acceso a texto completo de su documento / Este trabajo complementa las ideas de Agosin y Huaita (2012) en “Overreaction in Capital Flows to Emerging Markets: Booms and Sudden Stops”, pero introduce la distinción entre flujos IED y no-IED, utilizando los flujos non-IED de la cuenta financiera de la balanza de pagos (excluyendo movimientos de reservas) como medida de los flujos de capital netos en lugar de la cuenta financiera total. La hipótesis que sostiene este documento es que son grandes flujos distintos de la inversión extranjera directa los que tienen un efecto importante en la predicción de Sudden Stops de capitales. Complementando estas ideas, se agrega al análisis la descomposición de los flujos no- IED en dos grandes componentes principales - flujos de cartera y derivados financieros y otras inversiones - con el objetivo de testear su impacto tanto sobre episodios de Sudden Stops como sobre episodios de Booms. Los resultados arrojan que Booms liderados por flujos no-IED son el principal causante de Sudden Stops. Para Booms de capitales se obtiene el mismo patrón. Sin embargo, se observa una relación entre grandes flujos de inversión extranjera directa y estos episodios, aunque esta relación es más débil que el resto de las partidas de la cuenta financiera.

[pt] Apesar de existirem argumentos simples e usuais de que reservas seriam uma proteção em sudden stops, encontramos poucos trabalhos sobre esse assunto na literatura. O objetivo deste estudo é justamente tentar identificar e quantificar os reais benefícios (ou custos) de se ter reservas nesse tipo de crise. Iniciamos construindo um modelo que, ao contrário do usual, permite que o estoque de reservas impacte a dinâmica do fluxo de capital, via expectativas. Ele sugere que reservas reduzem a probabilidade de ocorrência da crise, mas que, uma vez iniciada, ela tende a ser mais forte. Pesquisamos, então, essas relações empiricamente, com um painel de países. Não encontramos efeito sobre a probabilidade de sudden stop, mas, de fato, as regressões sugerem que reservas tendem a acentuar a queda do fluxo de capital nas crises. Ainda assim, não encontramos evidência de que esse instrumento afete o custo do sudden stop (medido como queda no produto). / [en] Although there are simple and usual arguments claiming that reserves might offer protection at sudden stops, few papers about this subject are found in the literature. The goal of this study is to try to identify and quantify the real benefits (or costs) of having reserves at this kind of crisis. We begin with the construction of a model that, contrary to what is usually done, allows the stock of reserves to impact the dynamics of capital flows, through expectations. It suggests that reserves reduce the probability of occurrence of crisis, but, once it is starts, it tends to be stronger. We therefore study these relations empirically, with a panel of countries. We don´t find effects upon the probability of sudden stop, but, indeed, the regressions suggest that reserves tend to increase the fall in capital flows at crises. Nevertheless, we find no evidence that this instrument affects the cost of the sudden stop (measured by the product fall).

In this dissertation, I study international financial crises. For this purpose, I build two models. In the first model, I focus on financial crises in developing, large open economies where foreign debt with various maturities and issue dates is available. The objective is to measure the vulnerability of the domestic financial system to domestically triggered bank runs and externally triggered sudden stops. The main contribution of this model is that both types of crises are treated as rational responses of domestic depositors and international creditors. Such vulnerability measures are linked to fundamentals and equilibrium term structure of foreign debt. Banks’ vulnerability to runs increases if they hold a relatively shorter term debt. Also, a larger cost of liquidating the long-term investment before maturity makes the banks more fragile. In the next step, given a domestic banking crisis, I allow international creditors to decide whether they want to stop lending to domestic banks (in which case a “sudden stop” takes place) or not. A sudden stop is more likely if (i) creditors highly discount future consumption, (ii) creditors’ current income is small relative to their future income, and (iii) the cost of liquidating the long-term investment before maturity is small. In the second model, I investigate the merits of alternative monetary policies with respect to financial fragility. In this monetary model of an explicit financial system, I motivate the demand for two fiat currencies by spatial separation and limited communication of agents. There is a domestic and a foreign currency freely traded without restrictions. I analyze the policy of a constant growth rate of domestic money supply with a floating exchange rate regime. Both currencies are held in positive amounts at the steady-state only if the growth rate of domestic money supply is equal to the world inflation rate (WIR). If the former rate is larger than the WIR, domestic currency is not held at the steady-state. Also, total real money balances held is negatively related with WIR. Finally, monetary policy in the form of a constant growth rate of domestic money supply is neutral with respect to welfare.

In this dissertation, I study international financial crises. For this purpose, I build two models. In the first model, I focus on financial crises in developing, large open economies where foreign debt with various maturities and issue dates is available. The objective is to measure the vulnerability of the domestic financial system to domestically triggered bank runs and externally triggered sudden stops. The main contribution of this model is that both types of crises are treated as rational responses of domestic depositors and international creditors. Such vulnerability measures are linked to fundamentals and equilibrium term structure of foreign debt. Banks’ vulnerability to runs increases if they hold a relatively shorter term debt. Also, a larger cost of liquidating the long-term investment before maturity makes the banks more fragile. In the next step, given a domestic banking crisis, I allow international creditors to decide whether they want to stop lending to domestic banks (in which case a “sudden stop” takes place) or not. A sudden stop is more likely if (i) creditors highly discount future consumption, (ii) creditors’ current income is small relative to their future income, and (iii) the cost of liquidating the long-term investment before maturity is small. In the second model, I investigate the merits of alternative monetary policies with respect to financial fragility. In this monetary model of an explicit financial system, I motivate the demand for two fiat currencies by spatial separation and limited communication of agents. There is a domestic and a foreign currency freely traded without restrictions. I analyze the policy of a constant growth rate of domestic money supply with a floating exchange rate regime. Both currencies are held in positive amounts at the steady-state only if the growth rate of domestic money supply is equal to the world inflation rate (WIR). If the former rate is larger than the WIR, domestic currency is not held at the steady-state. Also, total real money balances held is negatively related with WIR. Finally, monetary policy in the form of a constant growth rate of domestic money supply is neutral with respect to welfare.

This dissertation attempts in three essays to contribute to the growing body of research on the problems associated with sudden stops of capital inflows, known to have been at the heart of many recent emerging market crises. It does this by developing basic models that can incorporate sudden stops and hopefully make policy relevant recommendations. The first essay develops a simple three date representative agent model of a small open endowment economy without money. It allows sudden stops to occur at date two and asks whether individuals in such a shock-prone world are still better off borrowing than in autarky. Unambiguously, this chapter shows that individuals are better off borrowing than in autarky and provides a tractable core model on which the later chapters build. The second essay then includes a long-term borrowing option as well as country-specific risk premia based on an information asymmetry between domestic borrowers and international lenders. This allows analysis of optimal maturity choices in a meaningful way. The intent is to address questions in the literature concerning whether emerging economies could enhance welfare by imposing short-term capital controls to encourage the use of longer-maturing debt and thus avoid the sudden stop. The results imply that short-term capital controls would generally lower welfare, even when sudden stops are fully anticipated. Finally, the third essay extends the horizon of the model and includes a much wider range of maturities. This allows one to start making sense of maturity bunching (when a country's debt all matures around a given date) which is known to exacerbate sudden-stop related problems. The model shows that maturity bunching can occur endogenously when both risk premia and uncertainty over the duration of the sudden stop are present.

This dissertation addresses the causes of and policy responses to the 1990s current account crises. The first chapter explores the relative importance of external shocks as key determinants of the significant increase of foreign reserves accumulated in many emerging market economies, and provides a comprehensive framework to assess the adequacy of reserve holdings. Using the case of Mexico, I find that more than two thirds of the increase in international reserves can be replicated by a linear combination of external shocks, without an abrupt regime shift after the Tequila crisis. I also find that Mexico has historically adopted an appropriate reserves policy, with 1994 being an exception. However, under the current reserves policy, there is a positive probability of a current account crisis in the near future. In chapter Two, I investigate the optimal reserves policy. The analysis predicts an optimal level of reserves in Mexico that is considerably higher than the actual level. When I account for the possibility of a bailout by the outside world in case of a crisis, Mexico's current reserves policy is in the range of my model's predictions. The final chapter proposes a new explanation for the existence and nature of sudden stops. In my model, a sudden stop forms a necessary solution to the moral hazard problem in investment and can be rationalized as part of an optimal lending strategy in the face of asymmetric information. / Thesis (Ph.D, Economics) -- Queen's University, 2009-08-13 22:52:26.219

94f. / Submitted by Suelen Reis (suziy.ellen@gmail.com) on 2013-03-08T14:40:28Z No. of bitstreams: 1 Jamilly%20Dias%20dos%20Santosseg.pdf: 1233139 bytes, checksum: 994f8ab66286afdd209b346a7bce84f2 (MD5) / Approved for entry into archive by Vania Magalhaes(magal@ufba.br) on 2013-03-14T12:39:10Z (GMT) No. of bitstreams: 1 Jamilly%20Dias%20dos%20Santosseg.pdf: 1233139 bytes, checksum: 994f8ab66286afdd209b346a7bce84f2 (MD5) / Made available in DSpace on 2013-03-14T12:39:10Z (GMT). No. of bitstreams: 1 Jamilly%20Dias%20dos%20Santosseg.pdf: 1233139 bytes, checksum: 994f8ab66286afdd209b346a7bce84f2 (MD5) Previous issue date: 2011 / O objetivo do trabalho é verificar empiricamente qual o impacto dos Fundos Soberanos de Riqueza (FSR – RN) de recursos naturais sobre a estabilidade econômica. Os fundos soberanos de recursos naturais têm sido um mecanismo utilizado pelas economias ricas em recursos naturais para gerir as receitas provenientes da exploração desses recursos, com objetivos que vão desde poupança para gerações futuras, incremento da taxa de retorno das reservas internacionais e apoio a projetos socioeconômicos, principalmente em infraestrutura, à estabilização econômica. Os efeitos dos FSR - RN podem ser tanto estabilizadores como desestabilizadores sobre variáveis macroeconômicas. Desse modo, o trabalho analisa se os FSR – RN podem ou não reforçar o papel das reservas internacionais sobre a volatilidade cambial. Para tanto, serão analisados os objetivos declarados pelos fundos soberanos, o histórico de constituição desses fundos em seus países, os tipos de fundos existentes e sua classificação. A fundamentação teórica do problema de pesquisa está baseada nas teorias do Sudden Stops e do Motivo Precaução. De acordo com o Motivo Precaução, a demanda por ativos no exterior leva em consideração que a posse de bens estrangeiros altera a probabilidade e a magnitude de Sudden Stops, ou seja, da parada súbita do influxo de capitais. Nesse contexto, o trabalho apresenta os efeitos estabilizadores e desestabilizadores dos fundos de recursos naturais sobre as economias de seus países. Para testar os efeitos do FSR - RN sobre a estabilidade cambial dos países, será utilizado um modelo de painel dinâmico, estimado através dos métodos Arellano e Bover (1995). O principal resultado é que os FSR - RN possuem efeito estabilizador sobre as economias que possuem exploração de recursos naturais em suas fronteiras. / Salvador

This study aims to analyze the causes and consequences of sudden stops in international capital flows with special reference to the recent Turkish experience. We aim to investigate also the vulnerability of the Turkish economy to a sudden stop and compute the required change in the real exchange rates for a current account adjustment in the face of a sudden stop. The assessment of the economic and structural indicators, which are assumed to be related with the resilience of the economy against sudden stops, such as openness and dollarization, refers that the risk of experiencing a sudden stop has increased in Turkey in the last two years, despite a decrease in its exposure to the destructive effects of such shocks thanks to the structural improvements in the economy. Our empirical results based on a small open economy model with tradables and non-tradables suggest that a sudden stop that requires the closing of the current account imbalance in Turkey would necessitate a real depreciation of around 36 percent as of May 2008 under the assumption that international reserves were not used in order to mitigate the level and the effects of the adjustment. Although the effects of such a real depreciation may be milder due to the decreased currency mismatches in the public and banking sector, there is still the risk of experiencing a financial crisis following a sudden stop because of the high liability dollarization in the real sector.

No description available.