Can Emerging Market Central Banks Bail Out Banks? A+L4848 Cautionary Tale From Latin America

Luis Jácome, Tahsin Saadi Sedik () and Simon Townsend

No 2011/258, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates whether developing and emerging market countries can implement monetary policies similar to those used by advanced countries during the recent global crisis - injecting significant amounts of money into the financial system without facing major short-run adverse macroeconomic repercussions. Using panel data techniques, the paper analyzes episodes of financial turmoil in 16 Latin America during 1995-2007. The results show that developing and emerging market countries should be cautious because injecting money on a large scale into the financial system may fuel further macroeconomic instability, increasing the chances of simultaneous currency crises.

Keywords: WP; banking crisis; financial support; central bank money; market share; monetary policy; Banking crises; central banks; currency crises; financial stability; nominal exchange rate; central bank support; central bank credibility; currency depreciation; flight to quality; bank restructuring institution; central bank assistance; Currencies; Exchange rates; Monetary base; Global (search for similar items in EconPapers)
Pages: 30
Date: 2011-11-01
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Citations: View citations in EconPapers (7)

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