Exchange Rate Regimes for Emerging Markets: Moral Hazard and International Overborrowing
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Overview: In the absence of capital controls, this increases the magnitude of over-borrowing and leaves the economy both more vulnerable to speculative attack and more exposed to the real economic consequences of such an attack. Although Banks that enjoy government guarantees have an incentive to increase foreign borrowing and incur foreign exchange risks that are underwritten by the deposit insurance system. Here, this paper investigates the role of the exchange rate regime in a simple Fisherian model of the over-borrowing syndrome. The article helps one get the details on exchange rate regime, emerging markets, capital flows and over-borrowing.
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Format: PDF | Size: 830KB | Date: Jul 1999 | Pages: 37
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