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Original Sin, Balance-Sheet Crises, and the Roles of International Lending

Original Sin, Balance-Sheet Crises, and the Roles of International Lending

Chapter:
(p.95) 4 Original Sin, Balance-Sheet Crises, and the Roles of International Lending
Source:
Other People's Money
Author(s):
Olivier Jeanne, Jeromin Zettelmeyer
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226194578.003.0005

This chapter explains the role of international lending in the context of the “balance-sheet approach” to financial crises. The general consensus that foreign-currency debt is problematic masks a surprising variety of opinions and models of the dangers involved. Rather than presenting one more model of the dangers of foreign-currency debt, the chapter presents a framework that is general and flexible enough to organize a discussion of the recent literature, in a way that is not dependent on modeling details. The first part of the chapter can be viewed as a brief tour of the literature for the practitioner. In the second part, it discusses some of the challenges for domestic policies that arise in this framework, and the potential roles for international crisis lending.

Keywords:   international lending, balance-sheet approach, financial crises, foreign-currency debt, domestic policies

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