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MANY developing and emerging market economies are modernizing the way they conduct monetary policy to make it more transparent and forward looking, with more emphasis on exchange rate flexibility, an [...]

THE Arab Spring ushered in a dawn of change across many countries in the Arab world. Discontent drove the demonstrations, and later the discourse. Now a new world has begun [...]

Beginning with the papers by Calvo and Reinhart (2002) and Levy Yeyati and Sturzenegger (2001), there has been growing recognition of a disconnect between what emerging economies say they do in exchange rate policy (words), and what they do in practice (deeds). More specifically, a 'fear of floating' behavior has been identified, whereby countries that classify themselves as floating exchange rate regimes intervene quite vigorously over time. While many persuasive arguments have been offered as to why countries intervene, the question remains as to why intervening countries continue to classify their regimes as floating. Thus, concurrently with fear of floating, there seems to be a 'fear of declaring.' This paper examines one possible reason for fear of declaring: that international capital markets might reward countries that are classified toward the flexible end of the spectrum. Based on the JPMorgan Emerging Market Bond Index spread, we use a panel data approach that exploits both time and cross-country variability. With some qualifications, we find that spreads are lower in countries that have a fixed exchange rate regime, whether de jure or de facto, implying that there is no evidence that markets punish fear of floating. One possible explanation for this puzzle--that is, countries intervene but say that they do not, even though markets appear to be, at a minimum, indifferent to intervention--arises from the fact that there is evidence that de jure floating regimes may fare better in crisis situations. [JEL F31, F33, G15, O16] LMF Staff Papers (2008) 55, 445--480. doi: 10.1057/imfsp.2008.14, Following a large body of theoretical work on the pros and cons of adopting different exchange rate regimes, in the past decade a prominent literature arose that aimed to classify [...]

The simple answer to both questions in the title of this paper: No. We concentrate on three key aspects of the banking system's difficulties during the 2001-02 crisis. Two are related to bank behavior (increasing dollarization of the balance sheet and expanding exposure to the government), and the other is related to the degree by which banks were hurt by depositor preferences, specifically, the run on deposits during 2001. We find that there was substantial cross-bank variation, that is, not all banks behaved equally nor were hurt equally by the macroeconomic shocks they faced during the run-up to the crisis. Furthermore, using panel data estimation, we find that depositors were able to distinguish high-risk from low-risk banks, and that individual bank's exposure to currency and government default risk depended on fundamentals and other bank-specific characteristics. Finally, our results have implications for the existence of market discipline in periods of stress, and for banking regulation, which may have led banks to underestimate some of the risks they incurred. [JEL F30, F41, G14, G21] IMF Staff Papers (2007) 54, 621 662. doi:10.1057/palgrave.imfsp.9450022, The literature to date on the Argentine crisis of 2001 has stressed the macroeconomic disequilibria that arose in the 1990s, continued unchecked for several years, and ultimately led to the [...]

FINANCIAL development and economic development are inextricably linked. Research has shown that countries with financial systems that mobilize a substantial amount of funds--that are deeper, to use the standard parlance--will [...]

This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the preliberalization (1974-88) and postliberalization (1991-96)periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia's progress in reducing operational costs and financial taxation and improving loan quality will determine whether it can narrow the spread. [JEL E43, G21, L13], A key variable in the financial system is the spread between lending and deposit interest rates. When it is too large, it is generally regarded as a considerable impediment to [...]