This paper studies how institutional factors and systemic risks (driven by macroeconomic conditions) prevalent in emerging economies may impact market discipline among banks (traditionally understood as market responses to bank fundamentals). First, we discuss how certain institutional features...

This paper shows that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions...

Despite delays, Basel II remains set to be finalized this year with implementation in Basel Committee countries by the end of 2006. How will this agreement between a set of G10+ countries affect emerging economies? Two implications are considered here for countries in Latin America. First,...

We propose a new test, derived from a set of variance decompositions of a structural VAR, for the success of inflation targeting. In contrast to standard sacrifice ratios this test considers changes in the structure of real and nominal shocks; second moment effects. We find strong support for IT...

Most models of monetary union (MU) are two country, here we develop a simple n-country Factor-OCA approach and consider the costs and benefits of joining an MU, the costs and benefits for third parties (both MU members and non members) and hence we can consider the optimal composition of an MU...

We develop a theoretical framework that encompasses four distinct motives for dollarization and discuss appropriate policy responses to help contain dollarization and its attendant risks. "Moral hazard" dollarization provides a clear case for prudential policy activism, including through the...

Rising international bank financing to developing countries has motivated a debate on the behavior of these claims. We analyze claims from seven home (lender) countries on ten host (borrower) countries in Latin America. We find that banks transmit shocks from their home countries and changes in...

We suggest that foreign banks may represent a trade-off for their developing country hosts. A portfolio model is developed to show that a more diversified international bank may be one of lower overall risk and less susceptible to funding shocks but may react more to shocks that affect expected...