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The Fifteenth Dubrovnik Economic Conference Croatian National Bank (Dubrovnik, June 2009). Discussion of the paper: “Currency Mismatch and Boom-Busts in Emerging Europe” b y R. Ranciere, A. Tornel, and A. Vamvakidis. Iryna Ivaschenko International Monetary Fund. Roadmap:. Contribution - PowerPoint PPT Presentation
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The Fifteenth Dubrovnik Economic ConferenceCroatian National Bank(Dubrovnik, June 2009)
Discussion of the paper:
“Currency Mismatch and Boom-Busts in Emerging Europe”by R. Ranciere, A. Tornel, and A. Vamvakidis
Iryna IvaschenkoInternational Monetary Fund
Roadmap:
Contribution Observations Suggestions Lessons going forward
Contribution:
Theoretical thinking about current crisis and FX vulnerabilities:Possible causes:
Relative price of FX debt: (1+r)u<(1+r) ER expectations (u) Expectations of counter-cyclical policies (a)
Lessons going forward
Observations Model:
currently rationalizes the crisis ex-post: i.e expected systemic bail-out expected depreciation (and crisis)
ex-ante is helpful too: lenders mis-price credit risk lenders and borrowers mis-manage exchange rate
expectations
Some suggestions:
Model:
Borrowing constraint is cycle-and currency-dependent: variable h (generate busts) hT > hH (generate FX mismatch to relax borrowing
constraints)
Keep probability u, but introduce agents’ expectation of Etpt+1>pt:
will generate credit boom and FX mismatch will keep FX mismatch in busts if bailout is expected
Some suggestions:
Empirics:
Test mistmacth-growth relationship more: add LatAm and Asia EM to the sample, keep the
time period extend the time period beyond recent “savings
glut-crisis” period
Lessons going forward: from model calibration to policy
Growth risk-return, country level: deliver growth on the risk-return frontier: (opennes,
institutions, sup®)
balance FX vulnerabilities: change relative attractiveness of the T-debt
safe equilibrium in non-liberalized economy
Crisis response: bailouts if country-specific risk (ui) vs systemic (u)