Country Insurance: The Role of Domestic Policies

Paolo Mauro, Torbjorn Becker, Jonathan Ostry, Romain Ranciere and Olivier Jeanne

No 2007/004, IMF Occasional Papers from International Monetary Fund

Abstract: This paper focuses on what countries can do on their own—that is, on the role of domestic policies—with respect to country insurance. Member countries are routinely faced with a range of shocks that can contribute to higher volatility in aggregate output and, in extreme cases, to economic crises. The presence of such risks underlies a potential demand for mechanisms to soften the blow from adverse economic shocks. For all countries, the first line of defense against adverse shocks is the pursuit of sound policies. In light of the large costs experienced by emerging markets and developing countries as a result of past debt crises, fiscal policies should seek to improve sustainability, taking into account that sustainable debt levels seem to be lower in emerging and developing countries than in advanced countries. Although much can be accomplished by individual countries through sound policies, risk management, and self-insurance through reserves, collective insurance arrangements are likely to continue playing a key role in cushioning countries from the impact of shocks.

Keywords: OP; cost; emerging market country; commodity price futures; banking crisis dummy; crisis; terms of trade shock; lending boom date; Sudden stops; Emerging and frontier financial markets; Reserve positions; Foreign direct investment; Bonds; Global; Asia and Pacific; Africa; output event; catastrophe bond; Insurance; Caribbean (search for similar items in EconPapers)
Pages: 44
Date: 2007-04-10
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Citations: View citations in EconPapers (19)

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