Central Bank Vulnerability and the Credibility of Commitments A Value-at-Risk Approach to Currency Crises
A loss of solvency increases central bank vulnerability, reducing the credibility of commitments to defend a nominal regime, including an exchange rate peg. This paper develops a methodology to assess central bank solvency and exposure to risk. The measure, based on Value-at-Risk, is frequently used...
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Format: | eBook |
Language: | English |
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Washington, D.C.
International Monetary Fund
1998
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Series: | IMF Working Papers
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Collection: | International Monetary Fund - Collection details see MPG.ReNa |
Summary: | A loss of solvency increases central bank vulnerability, reducing the credibility of commitments to defend a nominal regime, including an exchange rate peg. This paper develops a methodology to assess central bank solvency and exposure to risk. The measure, based on Value-at-Risk, is frequently used to evaluate commercial risk. The paper emphasizes that the ability to sustain nominal commitments cannot be gauged by focusing only on selected accounts (such as reserves), but requires a comprehensive solvency and vulnerability analysis of the monetary authorities' complete portfolio (including off-balance-sheet operations). The suggested measure has powerful reporting value and its disclosure could improve monitoring of sovereign solvency risk |
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Physical Description: | 29 pages |
ISBN: | 9781451962659 |