Seminario del GIDE: Borrowing Strategies Under Financial Stress: A Non-Parametric Approach to Diverging Patterns in the Use of the Global Financial Safety Net

El jueves 20 de agosto a las 18 horas vía Zoom tendrá lugar un Seminario del GIDE titulado "Borrowing Strategies Under Financial Stress: A Non-Parametric Approach to Diverging Patterns in the Use of the Global Financial Safety Net". Estará a cargo de Erick Limas (Institute for Latin American Studies, School of Business & Economics - Freie Universität Berlin).

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Resumen

While financial systems are indispensable to the functioning of modern economies, they also carry the risk of instability and crises. Insurance against crises is provided by several institutions and agreements that are today known as the global financial safety net (GFSN). The global financial crisis considerably changed its size and composition, with new regional financial arrangements and currency swaps newly emerging. In this paper, we ask how these multiplied policy options affect the borrowing strategy of countries under financial stress. With non-parametric hierarchical clustering, we employ a data mining method that is novel to economic science to detect patterns of GFSN use. For the period 2001 to 2018, our data set contains 201 cases of IMF, RFA or swap agreements by 50 emerging economies and developing countries. We provide the first empirical analysis on substitutive versus complementary use of IMF, regional funds and currency swaps to prevent or backstop a crisis to addre ss a question that is raised in the literature as much as in policy debates. Our results show that those countries that are partner to currency swaps almost exclusively rely on them. A small group of swap-partnering countries complements them with IMF and regional fund’s programs. Most countries that is not partner to a currency swap uses the IMF and their regional fund in complementation even though regional funds maybe insufficient to tackle major crises. We conclude that insurance options have widened in the GFSN, but on highly unequal footing. Further, we see a strong need to include swap providing central banks in any effort to coordinate the GFSN to increase effectiveness of crisis insurance and backstop.

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