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Current Account Deficits, Sudden Stops, and International Reserves Accumulation

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

Identiferoai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:OKQ.1974/2600
Date17 August 2009
CreatorsNechi, SALEM
ContributorsQueen's University (Kingston, Ont.). Theses (Queen's University (Kingston, Ont.))
Source SetsLibrary and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada
LanguageEnglish, English
Detected LanguageEnglish
TypeThesis
Format878676 bytes, application/pdf
RightsThis publication is made available by the authority of the copyright owner solely for the purpose of private study and research and may not be copied or reproduced except as permitted by the copyright laws without written authority from the copyright owner.
RelationCanadian theses

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