Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53691
Authors: 
Aizenman, Joshua
Year of Publication: 
2010
Series/Report no.: 
ADBI working paper series 192
Abstract: 
In this paper I review the use of precautionary measures aimed at mitigating emerging markets' exposure to fragility associated with financial integration. The discussion draws possible lessons from the ongoing global liquidity crisis. The fear of losing international reserves (IR) constrained most emerging markets more than the fear of floating. The fear of using IR during a crisis suggests that emerging markets (EMs) opt to revisit the gains from financial globalization. High levels of IR may be required for the self insurance offered by those reserves to be effective. Under such circumstances, countries may benefit by supplementing the hoarding of IR with Pigovian tax-cum-subsidy policies. These policies would reduce external borrowing, and would fund the marginal hoarding of IR. The fear of losing IR also suggests a greater demand for regional pooling arrangements and swap lines as well as possible new roles for international financial institutions (IFI).
JEL: 
F15
F21
F32
F36
G15
Document Type: 
Working Paper

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