Systemic Sudden Stops, Credit Lines, and Funding Liquidity

Gurbachan Singh
  • December 2013, Springer Science + Business Media
  • DOI: 10.1007/978-81-322-1659-9_17

Policy to deal with 'sudden stop'

What is it about?

Sudden stop of capital flows can have large economic costs. Foreign exchange reserves are a standard solution to the problem. However, there is a large and persistent cost of such reserves. A more economical safeguard is an international credit line. The chapter in the edited volume takes a close look at such a safeguard.

Why is it important?

After the East Asian Financial Crisis of 1997-98, there has been considerable emphasis on capital controls. However, international credit lines (and Pigouvian tax-subsidy schemes) can reduce, if not obviate, the need for such capital controls.

Perspectives

Gurbachan Singh

The economics of sudden stop is not well understood. It is a soft option to look for government intervention to deal with the problem. There is a need for a closer look at the possible market failure, and to devise policy solutions in the light of this analysis. This is indeed what the focus of the chapter.

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http://dx.doi.org/10.1007/978-81-322-1659-9_17

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