Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies
The authors argue that short termism, dollarization, and the use of foreign jurisdictions are endogenous ways of coping with systemic risks prevalent in emerging markets. They represent a symptom at least as much as a problem. These coping mechanis...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/02/3209013/coping-risk-through-mismatches-domestic-international-financial-contracts-emerging-economies http://hdl.handle.net/10986/14788 |
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okr-10986-147882021-04-23T14:03:20Z Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies de la Torre, Augusto Schmukler, Sergio L. SHORT TERM DOLLARIZATION EMERGING MARKETS RISK INVESTOR PROTECTION LITIGATION ACCOUNTING ADVERSE EFFECTS ADVERSE SELECTION AGENCY PROBLEMS AGENTS ASSETS BALANCE SHEETS BANK DEPOSITS BANKRUPTCY CAPITAL FLOWS CAPITAL MARKETS CAPITALIZATION CENTRAL BANKS CONNECTED LENDING CONSUMER PRICE INDEX CONTRACT ENFORCEMENT CORPORATE GOVERNANCE CREDIT RISK CREDIT RISK EXPOSURE DEBT DEFAULT RISK DEPOSITORS DEPOSITS DEVALUATION DISCLOSURE ECONOMIC GROWTH ECONOMIC SIZE ECONOMISTS EMERGING MARKETS EXCHANGE RATES EXPECTED VALUES EXPORTS EXTERNALITIES FACE VALUE FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL INNOVATION FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL MARKET LIBERALIZATION FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SYSTEMS GDP GLOBALIZATION INCENTIVE PROBLEMS INCOME INFLATION INFLATION RATE INSURANCE INSURANCE CONTRACTS INTEREST RATE LENDING PRACTICES LIQUIDITY LITIGATION M2 MACROECONOMIC POLICY MACROECONOMIC STABILITY MARKET EQUILIBRIUM MONETARY POLICY MORAL HAZARD NETWORK EXTERNALITIES PORTFOLIO PORTFOLIO DIVERSIFICATION PRICE RISK PRIVATE SECTOR PROBABILITY OF DEFAULT PUBLIC GOOD PURCHASING POWER REAL INTEREST RATE REAL PRICES REORGANIZATION RISK ALLOCATION RISK AVERSE RISK REDUCTION SAFETY NETS SCALE ECONOMIES SIDE EFFECTS STATE INTERVENTION SUBSIDIARIES SYSTEMIC RISK TRANSACTION COSTS TRANSPARENCY WEALTH The authors argue that short termism, dollarization, and the use of foreign jurisdictions are endogenous ways of coping with systemic risks prevalent in emerging markets. They represent a symptom at least as much as a problem. These coping mechanisms are jointly determined and the choice of one of them involves risk tradeoffs. Various conclusions can be derived from the analysis. First, because of the dominance of dollar contracts over short-duration contracts, dedollarization might be much more difficult to achieve than often believed. Second, one-dimensional policies aimed at reducing currency and duration mismatches might just displace risk and not diminish it. Third, as systemic risks rise, the market equilibrium settles in favor of investor protection against price risk (through dollar and short-duration contracts) at the expense of exposure to credit risk. Finally, the option value to litigate in the event of default might explain this equilibrium outcome. 2013-08-05T13:30:02Z 2013-08-05T13:30:02Z 2004-02 http://documents.worldbank.org/curated/en/2004/02/3209013/coping-risk-through-mismatches-domestic-international-financial-contracts-emerging-economies http://hdl.handle.net/10986/14788 English en_US Policy Research Working Paper;No.3212 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
SHORT TERM DOLLARIZATION EMERGING MARKETS RISK INVESTOR PROTECTION LITIGATION ACCOUNTING ADVERSE EFFECTS ADVERSE SELECTION AGENCY PROBLEMS AGENTS ASSETS BALANCE SHEETS BANK DEPOSITS BANKRUPTCY CAPITAL FLOWS CAPITAL MARKETS CAPITALIZATION CENTRAL BANKS CONNECTED LENDING CONSUMER PRICE INDEX CONTRACT ENFORCEMENT CORPORATE GOVERNANCE CREDIT RISK CREDIT RISK EXPOSURE DEBT DEFAULT RISK DEPOSITORS DEPOSITS DEVALUATION DISCLOSURE ECONOMIC GROWTH ECONOMIC SIZE ECONOMISTS EMERGING MARKETS EXCHANGE RATES EXPECTED VALUES EXPORTS EXTERNALITIES FACE VALUE FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL INNOVATION FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL MARKET LIBERALIZATION FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SYSTEMS GDP GLOBALIZATION INCENTIVE PROBLEMS INCOME INFLATION INFLATION RATE INSURANCE INSURANCE CONTRACTS INTEREST RATE LENDING PRACTICES LIQUIDITY LITIGATION M2 MACROECONOMIC POLICY MACROECONOMIC STABILITY MARKET EQUILIBRIUM MONETARY POLICY MORAL HAZARD NETWORK EXTERNALITIES PORTFOLIO PORTFOLIO DIVERSIFICATION PRICE RISK PRIVATE SECTOR PROBABILITY OF DEFAULT PUBLIC GOOD PURCHASING POWER REAL INTEREST RATE REAL PRICES REORGANIZATION RISK ALLOCATION RISK AVERSE RISK REDUCTION SAFETY NETS SCALE ECONOMIES SIDE EFFECTS STATE INTERVENTION SUBSIDIARIES SYSTEMIC RISK TRANSACTION COSTS TRANSPARENCY WEALTH |
| spellingShingle |
SHORT TERM DOLLARIZATION EMERGING MARKETS RISK INVESTOR PROTECTION LITIGATION ACCOUNTING ADVERSE EFFECTS ADVERSE SELECTION AGENCY PROBLEMS AGENTS ASSETS BALANCE SHEETS BANK DEPOSITS BANKRUPTCY CAPITAL FLOWS CAPITAL MARKETS CAPITALIZATION CENTRAL BANKS CONNECTED LENDING CONSUMER PRICE INDEX CONTRACT ENFORCEMENT CORPORATE GOVERNANCE CREDIT RISK CREDIT RISK EXPOSURE DEBT DEFAULT RISK DEPOSITORS DEPOSITS DEVALUATION DISCLOSURE ECONOMIC GROWTH ECONOMIC SIZE ECONOMISTS EMERGING MARKETS EXCHANGE RATES EXPECTED VALUES EXPORTS EXTERNALITIES FACE VALUE FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL INNOVATION FINANCIAL INTEGRATION FINANCIAL INTERMEDIATION FINANCIAL MARKET LIBERALIZATION FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SYSTEMS GDP GLOBALIZATION INCENTIVE PROBLEMS INCOME INFLATION INFLATION RATE INSURANCE INSURANCE CONTRACTS INTEREST RATE LENDING PRACTICES LIQUIDITY LITIGATION M2 MACROECONOMIC POLICY MACROECONOMIC STABILITY MARKET EQUILIBRIUM MONETARY POLICY MORAL HAZARD NETWORK EXTERNALITIES PORTFOLIO PORTFOLIO DIVERSIFICATION PRICE RISK PRIVATE SECTOR PROBABILITY OF DEFAULT PUBLIC GOOD PURCHASING POWER REAL INTEREST RATE REAL PRICES REORGANIZATION RISK ALLOCATION RISK AVERSE RISK REDUCTION SAFETY NETS SCALE ECONOMIES SIDE EFFECTS STATE INTERVENTION SUBSIDIARIES SYSTEMIC RISK TRANSACTION COSTS TRANSPARENCY WEALTH de la Torre, Augusto Schmukler, Sergio L. Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies |
| relation |
Policy Research Working Paper;No.3212 |
| description |
The authors argue that short termism,
dollarization, and the use of foreign jurisdictions are
endogenous ways of coping with systemic risks prevalent in
emerging markets. They represent a symptom at least as much
as a problem. These coping mechanisms are jointly determined
and the choice of one of them involves risk tradeoffs.
Various conclusions can be derived from the analysis. First,
because of the dominance of dollar contracts over
short-duration contracts, dedollarization might be much more
difficult to achieve than often believed. Second,
one-dimensional policies aimed at reducing currency and
duration mismatches might just displace risk and not
diminish it. Third, as systemic risks rise, the market
equilibrium settles in favor of investor protection against
price risk (through dollar and short-duration contracts) at
the expense of exposure to credit risk. Finally, the option
value to litigate in the event of default might explain this
equilibrium outcome. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
de la Torre, Augusto Schmukler, Sergio L. |
| author_facet |
de la Torre, Augusto Schmukler, Sergio L. |
| author_sort |
de la Torre, Augusto |
| title |
Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies |
| title_short |
Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies |
| title_full |
Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies |
| title_fullStr |
Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies |
| title_full_unstemmed |
Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies |
| title_sort |
coping with risk through mismatches : domestic and international financial contracts for emerging economies |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/02/3209013/coping-risk-through-mismatches-domestic-international-financial-contracts-emerging-economies http://hdl.handle.net/10986/14788 |
| _version_ |
1764430083463839744 |