Addressing Private Sector Currency Mismatches in Emerging Europe

Jeromin Zettelmeyer · Piroska Mohácsi Nagy

63 citations0/0 files storedRePEc: Research Papers in Economics

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Banking stability, regulation, efficiency

Abstract

This paper provides a survey of the theoretical and empirical literature on the dollarisation of corporate and household liabilities; presents evidence on the causes of FX lending specifically in transition economies; and proposes a set of criteria to help decide on the right policy response based on country characteristics. These criteria particularly affect the extent to which regulation should be part of the policy response. Regulation to contain FX mismatches is useful in relatively advanced countries in which small market size and/or proximity to the euro make it difficult to fully develop local currency capital markets. In contrast, regulatory responses could be counterproductive in less advanced countries with high macroeconomic volatility. In these countries, the route to de-dollarisation first and foremost requires the strengthening of macroeconomic institutions.

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References

2007The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970–2004 1999Exchange Rates and Financial Fragility 1999What caused the Asian currency and financial crisis?1993Limited market participation and volatility of asset prices 2003Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters 2007Debt Defaults and Lessons from a Decade of Crises 2004Balance Sheet Effects, Bailout Guarantees and Financial Crises 2009What happens during recessions, crunches and busts?

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2016A New Dimension to Currency Mismatches in the Emerging Markets - Non-Financial Companies 2014The Euroization of Bank Deposits in Eastern Europe 2010The Global Credit Crunch and Foreign Banks’ Lending to Emerging Markets 2015Foreign currency borrowing and knowledge about exchange rate risk 2021In lands of foreign currency credit, bank lending channels run through?

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