The International Monetary Fund's Balance Sheet Approach to Financial Crisis Prevention an Resolution

Andrea Hofer ()
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Andrea Hofer: Oesterreichische Nationalbank

Monetary Policy & the Economy, 2005, issue 1, 77–94

Abstract: In 2002, the International Monetary Fund added the Balance Sheet Approach to its set of instruments for monitoring member countries as well as the international financial system and for preventing and resolving financial crises. In this approach, which was predominantly conceived for emerging market economies, the IMF assumes that a country's vulnerability to financial crises depends in part on the financial structure of its sectoral balance sheets. With this instrument, the IMF analyzes the size and the composition of financial assets and liabilities in a country's aggregate balance sheet and its most important sectoral balance sheets (government, banks, corporations and households as well as the rest of the world). The IMF finds indicators of a country's vulnerability to crises by detecting imbalances in its maturity and currency matching, capital structure and solvency. This makes a valuable contribution to crisis prevention and helps to determine the necessary economic policy measures and external financing needs once a financial crisis has emerged. The IMF already employs this approach in its analyses and also plans to use it routinely in future Article IV consultations.

Keywords: IMF; Balance Sheet (search for similar items in EconPapers)
Date: 2005
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