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The Fifteenth Dubrovnik Economic Conference Croatian National Bank (Dubrovnik, June 2009)

The Fifteenth Dubrovnik Economic Conference Croatian National Bank (Dubrovnik, June 2009). Discussion of the paper: “Currency Mismatch and Boom-Busts in Emerging Europe” b y R. Ranciere, A. Tornel, and A. Vamvakidis. Iryna Ivaschenko International Monetary Fund. Roadmap:. Contribution

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The Fifteenth Dubrovnik Economic Conference Croatian National Bank (Dubrovnik, June 2009)

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  1. The Fifteenth Dubrovnik Economic ConferenceCroatian National Bank(Dubrovnik, June 2009) Discussion of the paper: “Currency Mismatch and Boom-Busts in Emerging Europe” by R. Ranciere, A. Tornel, and A. Vamvakidis Iryna Ivaschenko International Monetary Fund

  2. Roadmap: • Contribution • Observations • Suggestions • Lessons going forward

  3. Contribution: Theoretical thinking about current crisis and FX vulnerabilities: • Possible causes: • Relative price of FX debt: (1+r)u<(1+r) • ER expectations (u) • Expectations of counter-cyclical policies (a) • Lessons going forward

  4. Observations • Model: • currently rationalizes the crisis ex-post: • i.e expected systemic bail-out • expected depreciation (and crisis) • ex-ante is helpful too: • lenders mis-price credit risk • lenders and borrowers mis-manage exchange rate expectations

  5. Some suggestions: Model: • Borrowing constraint is cycle-and currency-dependent: • variable h (generate busts) • hT > hH (generate FX mismatch to relax borrowing constraints) • Keep probability u, but introduce agents’ expectation of Etpt+1>pt: • will generate credit boom and FX mismatch • will keep FX mismatch in busts if bailout is expected

  6. Some suggestions: Empirics: • Test mistmacth-growth relationship more: • add LatAm and Asia EM to the sample, keep the time period • extend the time period beyond recent “savings glut-crisis” period

  7. Lessons going forward: from model calibration to policy • Growth risk-return, country level: • deliver growth on the risk-return frontier: (opennes, institutions, sup&reg) • balance FX vulnerabilities: • change relative attractiveness of the T-debt • safe equilibrium in non-liberalized economy • Crisis response: • bailouts if country-specific risk (ui) vs systemic (u)

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