Abstract

In Latin America and the Caribbean, local credit and capital market activity have picked up strongly in recent years, with bank credit growing in double digits in several countries (see Chapter 2). As the external environment becomes more challenging, the question arises to what extent this increased intermediation mirrors the region’s rising resilience and not a renewed buildup in vulnerabilities.

In Latin America and the Caribbean, local credit and capital market activity have picked up strongly in recent years, with bank credit growing in double digits in several countries (see Chapter 2). As the external environment becomes more challenging, the question arises to what extent this increased intermediation mirrors the region’s rising resilience and not a renewed buildup in vulnerabilities.

This chapter examines the characteristics of recent financial sector developments in the LAC region to shed light on the sustainability of the region’s recent rapid credit and financial sector growth, focusing particularly on bank credit. The analysis addresses three questions. The first is whether rapid increases in bank credit and capital market activity have been associated with deepening and broadening of markets, as measured by underlying improvements in banking efficiency, market liquidity, and the number of new stock or bond issues. The second is whether the strong credit growth observed in several countries signals an excessive credit boom that cannot be sustained, or is more likely to reflect mostly improved macroeconomic and institutional fundamentals. The third issue concerns the key regulatory and institutional challenges remaining in the region, based on a survey of recent financial sector assessments.

Financial Deepening or Bubbles

Financial deepening strengthens an economy’s resilience to adverse shocks through stronger financial institutions, greater risk diversification, and more efficient allocation of capital, which also promotes economic growth. Stock and bond market development contributes to growth through the creation of liquidity, which makes investment less risky and more attractive while companies raise long-term capital (Levine, 1996). Well-functioning derivatives markets can contribute to this process through risk sharing and lowering the costs of managing complex risks.

Latin America’s financial markets continue to lag those in other emerging markets. Recent data show that this remains the case, as measured by bank credit–to-GDP ratios, market capitalization, and capital raised in equity markets. Market liquidity for both stocks and corporate bonds also remains relatively low in the region.

ch05fig01

Domestic Market Capitalization

(In percent of GDP) 1/

Sources: Bank for International Settlements; and the World Federation of Exchanges.1/ GDP weighted averages. Defined as the sum of local corporate bonds outstanding and domestic stock market capitalization.
ch05fig02

Stock Turnover Ratio

(In percent) 1/

Source: World Federation of Exchanges.1/ Unweighted averages. Defined as the ratio of value of domestic shares traded to market capitalization.

However, recent developments in the region indicate some genuine deepening and broadening in the LAC region’s financial markets. First, overhead costs, a measure of banking intermediation efficiency, have declined since 2001. Second, domestic stock and corporate bond markets in the larger Latin American countries have expanded in terms of total capitalization, although partly driven by higher asset prices (see Chapter 2). Third, markets have become more liquid on various measures, including the total values of stocks and bonds traded measured relative to market capitalization (i.e., turnover ratio), as a share of GDP, and relative to market volatility. Fourth, new stock and corporate bond listings across the region, although still low, have risen. They reached an annual average of 8 and 200, respectively, during the period 2004–06, compared with 4 and 155 during the previous three-year period. Finally, markets for exchange-traded foreign exchange derivatives and over-the-counter foreign exchange and interest rate derivatives have expanded in several countries (see Box 10).

Derivatives Markets in Latin America

Well-functioning derivatives markets can provide significant benefits to corporations, financial institutions, and institutional investors by allowing them to improve risk management and lower funding costs. For example, greater accessibility and diversity of derivatives help alleviate exchange rate risk facing Latin American firms and facilitate commodity price hedging in some of the region's largest economies.

Partly reflecting these benefits, derivatives trading has surged in the larger economies in the region. Brazil, Mexico, Colombia, and Chile combined registered a daily trading volume of close to US$110 billion (notional) in 2006. Interest rate derivatives (swaps, options, and forward rate agreements) represented about 70 percent of total trading activity. Currency derivatives (FX forwards and swaps) have been growing rapidly in the wake of increased exchange rate and capital account flexibility as well as greater trade and financial integration. The use of other derivatives, such as those on local credit, remains limited.

With an average daily trading volume of US$46 billion in 2006, Brazil boasts the largest derivatives market in Latin America, followed closely by Mexico and Argentina. Trading activity in Brazil is dominated by exchange-traded interest rate and currency futures, while over-the-counter (OTC) derivatives trading (mainly interest rates) is relatively minor. In contrast, derivatives trading in Mexico and Argentina is focused on currency-based instruments (mostly on very short-term government debt) and commodities respectively.

In other countries in the region, derivatives trading is much smaller and occurs mostly OTC in either FX or fixed income assets. In Chile, trading is concentrated in onshore, short-term, OTC-traded FX derivatives contracts and in offshore nondeliverable forwards, motivated by limited foreign holdings in the domestic bond market, high transaction costs onshore, and regulatory limits on pension funds’ use of interest rate swaps and forwards. The derivatives market in Colombia is considerably smaller.

There is scope to develop these markets further, while strengthening regulatory oversight to mitigate potential downside risks. Reform priorities could include:

  • Strengthening the regulatory and legal frameworks for derivatives markets. Best practices include consistent capital rules, collateral requirements, and netting provisions; transparency-enhancing full balance sheet disclosure; accounting rules aligned with international accounting standards; a tax environment that creates a level playing field for all cash and derivatives trading; and provisions for short-selling.

  • Fostering exchange-based derivatives trading. In Mexico, MexDer offers a diverse set of derivatives instruments, and a well-functioning electronic settlement and clearing system enhances effective monitoring of trading activity and efficient execution of trades. In Brazil, BM&F has a solid track record in product innovation, asset diversification, and broadening of investor base. Both Colombia and Costa Rica are exploring possibilities to expand existing and create new exchanges for derivatives trading.

  • Encouraging a broad and balanced investor base for genuine hedging. For derivatives markets to be effective, especially in dollarized countries, the creation of complementary hedging interest is critical. Commercial banks with short-term liabilities (and long-term fixed-rate holdings) and institutional investors with long-term, foreign currency holdings have complementary term structures, with the latter acting as net suppliers of foreign currency or floating rate sellers. Removing limits or prohibitions on pension funds and insurance companies thus helps promote hedging and capital market liquidity in general. For example, the recent elimination of investment limits and transaction taxes for foreign investors in Mexico helped increase local bond market liquidity.

Note: This box was prepared by Andreas Jobst.

Credit Boom or Recovery

Recent rapid growth in bank credit needs to be viewed in light of the preceding long period of declining credit-to-GDP ratios (see the November 2006 Regional Economic Outlook). Moreover, to the extent that economic growth brings with it a certain degree of financial deepening, bank credit should be expected to follow a rising trend during an economic expansion such as the region has been experiencing. But as double-digit credit growth has continued in a number of countries across the region, it is important to evaluate whether this growth is sustainable. This is especially true for Latin America given the region’s history of susceptibility to “boom-bust” credit cycles.

In this section, two approaches were used to identify a potentially unsustainable credit boom: deviations of bank credit–to-GDP ratio from trend levels (Gourinchas, Valdés, and Landerretche, 2001) and a comparison of actual bank credit–to-GDP ratio with the estimated “potential” level, given a country’s macroeconomic and institutional fundamentals.

ch05fig03

New Capital Raised from Shares

(In percent of GDP) 1/

Source: World Federation of Exchanges.1/ Unweighted averages. Defined as amount of new capital raised through the sale of new shares issued by a new issuer, capital increases by already listed companies (reserved to previous shareholders), and Secondary Public Offerings (new shareholders subscribe to the shares).
ch05fig04

Comparing Stock Prices during Market Turbulence Periods

(Percent change; local currency) 1/

Source: Bloomberg, L.P.1/ Unweighted averages.
ch05fig05

Bank Overhead Costs

(In percent of total assets) 1/

Source: Fitch's BankScope database.1/ Unweighted averages.

In the first approach, the underlying trend is measured using a country-specific filter. A credit boom is identified when the deviation of the actual credit-to-GDP ratio from this estimated trend exceeds a given threshold. Threshold values are defined in terms of both absolute deviation (i.e., the simple difference between actual and trend credit to GDP) and relative deviation (i.e., the difference between actual and trend credit to GDP in percent of trend credit to GDP). The threshold values are selected so that they capture most of the past episodes of credit booms and/or banking crises (see Appendix).

In recent years, all but 6 of the 20 largest countries in Latin America and the Caribbean experienced increases in credit to the private sector relative to GDP. In 12 of these, sharp increases in credit pushed the ratio of credit to GDP over its trend level (see panel chart on actual and trend private sector credit). However, until 2006, no country experienced credit growth in excess of the “threshold” values for defining a boom. Last year, continued credit expansion pushed credit above one or both thresholds in five countries: Colombia, Honduras, Jamaica, Mexico, and Nicaragua. Past credit booms typically lasted several years before collapsing, although they suggest that continued debt expansion at this pace could warrant concern. It is thus too soon to conclude that these developments constitute an excessive or unsustainable “boom.”

Credit booms may also be identified on the basis of predictions of an economic model that links credit to fundamentals. The capacity for a country’s banking system to extend credit safely to the private sector depends both on economic conditions and on the quality of financial and public institutions. In this context, a credit “boom” could be viewed as credit growth that cannot be justified by economic fundamentals and institutional factors.

How do LAC countries measure up against other regions in the key determinants of financial development identified in the literature? As a number of authors have pointed out (de la Torre Gozzi, and Schmukler, 2006; and Braun and Hausmann, 2003), the still relatively low level of financial development is disappointing, given that several countries in the region have undertaken significant financial sector reform efforts since the 1980s. A regional comparison of underlying institutional determinants of financial development shows that while the LAC region is relatively strong in areas such as credit information and credit bureaus, it remains weak in areas such as creditor rights and governance. Moreover, even with the recent macroeconomic improvements, inflation and real interest rates also remain relatively high.

How empirically important are these weaknesses in holding back financial development in the Latin American and the Caribbean region? New econometric analysis using a panel of 79 countries over the period of 2001–05 shows that inflation, institutional quality (as measured by the World Bank’s governance index), and real deposit interest rates have significant effects on the ratios of private sector credit to GDP. For example, a 1 percentage point improvement in each of these dimensions is associated with an increase in private sector credit of over 1 percent of GDP.

ch05fig06

Comparisons of Key Determinants of Financial Development 1/

Sources: World Bank; IMF; and Huang (2007).1/ Figures are index values, except for inflation and real interest rates, which are in percent.

The effectiveness of creditor rights protection, captured by the variable “legal origin,” is also shown to matter—legal reforms toward stronger protection of creditors and investors may be expected to lead to significant increases in private sector credit relative to GDP.18 Finally, productivity growth that leads to higher GDP per capita may also help boost credit intermediation. Given these results, where then do LAC countries stand relative to their “potential”?

A comparison of actual credit to GDP with the level that would be predicted by the model shows that many of the 20 largest LAC countries have been performing below their model-fitted potentials in recent years (see panel chart on actual and fitted credit). Of the five largest emerging markets in LAC, only Brazil has bank lending to the private sector at a level close to its “potential,” whereas Chile, Mexico, Peru, and Colombia have still to benefit from their relatively strong fundamentals. Under this criterion, there is no indication of excess credit growth in Colombia and Mexico. Four countries—Bolivia, Haiti, Honduras, and Panama—are found to have credit-to-GDP ratios higher than their model fitted potentials. However, in two of these cases—Bolivia and Panama—higher-than-predicted credit ratios reflect the slow unwinding of credit booms during the 1990s rather than recent credit expansion. In the case of Haiti, it reflects the collapse (and slow recovery) of fundamentals as a result of political and social strife.

Slow adjustment of actual credit to improvements in fundamentals—either as a result of reforms in the 1990s and this decade, or from postcrisis recoveries—could also be the reason why bank credit remains below “potential” in many Latin American countries. In addition, credit levels that appear to trail fundamentals could reflect factors that are not included in the analyses but nevertheless tend to reduce credit intermediation, such as financial transaction taxes, interest rate controls, and directed lending.

In summary, the two commonly used criteria for “excess” credit growth analyzed for the region suggest that much of the recent credit growth seems to be generally associated with improvements in fundamentals, and that there are not yet clear signs of general overheating in the region. This finding is consistent with the latest prudential indicators and equity market–based bank solvency estimates, which show that nonperforming loan ratios and banks’ estimated default probabilities have remained at low levels (see Chapter 2 and Box 9). However, the aggregate picture may mask heightened vulnerabilities in certain financial institutions that have lowered credit standards in their pursuit of rapid expansion. While the extent of such vulnerabilities is not clear owing to the difficulty in obtaining up-to-date information on the institutional distribution of credit growth, the rapid pace of credit growth in some countries warrants enhanced regulatory oversight and prompts measures to strengthen supervisory capacity.

Regulatory Responses and Options

A survey based on Financial Sector Assessment Programs (FSAPs) and IMF Article IV consultations for the region shows that, while considerable progress has been made in strengthening and developing the region’s financial sectors, there remains scope for improvement in a number of areas. First, enhancing regulatory independence and risk-based supervisory capacity remains a top priority in many countries, especially where credit has been growing rapidly. Second, significant increases in foreign participation in several local capital and credit markets make effective consolidated and cross-border supervision more important. Third, the increasing role of nonbank financial institutions such as finance houses and mutual funds present a new regulatory challenge. Fourth, improving bank resolution framework and financial safety nets (such as the clarification of lender-of-last-resort functions and the role of deposit insurance, and crisis contingency planning) will be important to sustained financial stability. Finally, the recent growth in the derivatives markets in several Latin American countries makes it important for regulators to be able to monitor and evaluate the risks associated with financial innovations. The experience of the relatively developed markets in the region (mainly Brazil, but also Chile and Mexico) points to the importance of regulatory measures, disclosure requirements, and documentation standards for compliance with capital rules and smooth functioning of the derivatives markets.

ch05fig07

Progress in Financial Sector Reform

Source: IMF staff estimates. Based on information collected on the 20 largest countries in the LAC region.

Conclusions

Underpinned by institutional reforms and stronger policy frameworks, the region’s financial markets have deepened and broadened over the past several years. The analysis in this chapter suggests that recent rapid credit growth observed in the region mostly represents a continued catching up in the level of financial intermediation, following earlier crises and important financial sector reforms. However, the pace of credit growth indicates that heightened regulatory oversight may be needed in coming years. As governments in the region recognize, further reforms to deepen and broaden financial markets, and strengthen the institutional structure, will be important to bolster resilience going forward.

Appendix. Estimation Methods, Variable Definitions, and Data Sources

Two types of analyses are conducted in this chapter to give a range of indications for the extent that credit growth has exceeded a given trend level.

Filter-Based Trend Analysis

We derived the trend by applying a retrospective rolling Hodrick-Prescott filter for each country. This approach can be economically meaningful in that the threshold is selected based on past episodes of credit booms and/ or banking crises. Threshold values are defined in both relative deviation (i.e., the difference between actual and trend credit-to-GDP ratios relative to trend credit-to-GDP ratio) and absolute deviation (i.e., the difference between actual and trend credit-to-GDP ratio). The former adjusts for the different degree of financial deepening, and the latter for the different size of economy. A relative threshold of 18 percent and/or an absolute threshold of 3 percent capture a majority of the past credit booms or banking crises (e.g., 1994–97 Mexico crisis, 1994–99 Brazil crisis, 1981–83 Chile crisis, and 2002–03 Uruguay crisis).

The IMF’s International Financial Statistics data on banks’ claim on private sector and nominal GDP are used for the period of 1960–2006, and World Economic Outlook projections for nominal GDP are used for 2007 so that bank credit–to-GDP ratios are calculated as bank credit of the current year divided by the average of the current year GDP and the following year GDP.

Estimation of the “Potential” Level of Bank Credit to GDP

We included both economic fundamentals and policy and institutional variables that are found important for financial development in the literature. Djankov, McLiesh, and Schleifer (2006) found that both creditor protection through the legal system and information sharing institutions are associated with higher ratios of private credit to GDP, although the former is relatively more important in the richer countries and the latter in developing countries. A study by Huang (2007) found that trade openness and governance have positive effects on financial development, whereas civil legal origin, inflation volatility, and policy instability have negative effects on financial development. He also found initial conditions and geography important—countries with a smaller land area, higher initial GDP and population, more open trade policy, and stronger institutions have a higher level of financial development. A recent study by Dehesa, Druck, and Plekhanov (2007) found that higher credit-to-GDP ratios are associated with stronger creditor rights and lower inflation.

ch05fig08
ch05fig08
ch05fig08
ch05fig08
ch05fig08

Actual and Trend Private Sector Credit, 1960-2006

(Ratio to GDP) 1/ 2/

Sources: IMF, International Finance Statistics ; and IMF staff calculations.1/ Credit is the deposit-taking institutions' claims on the nonbank private sector. The trend is obtained by fitting a Hodrick-Prescott filter for each country, with paramater set at 100.2/ Shaded areas denote banking crises, compiled from Kaminsky and Reinhart (1996); Lindgren, Garcia, and Saal (1996); Caprio and Klingebiel (2002); and Carstens, Hardy, and Pazarbaşiŏglu (2004).
ch05fig09
ch05fig09
ch05fig09
ch05fig09
ch05fig09

Actual and Panel Fitted Credit, 2001-06

(Ratio to GDP) 1/

Sources: IMF, International Finance Statistics; and IMF staff calculations.1/ Credit is the deposit-taking institutions' claims on non-bank private sector. The trend is model-fitted credit-to-GDP ratio.

We used GMM IV regressions to formally estimate the effects of various factors on the banks’ credit to private sector as percent of GDP. Because of the possible endogeneity from using the concurrent level of GDP per capita, it was instrumented using lagged values of explanatory variables, as well as initial GDP and population and an index of ethnic fractionalization. The first-stage regression results suggest that endogeneity is indeed a problem, and IV relevance test and overidentification test support the use of these instruments. Time dummies are included to capture changes over time in global markets and domestic banking structure.

The table on p. 63 shows results from the preferred regression specifications, which are generally robust to changes in specifications. The estimates are similar to those found in the literature, with coefficients generally having the expected signs.19

The estimations of the “potential” level of bank credit to GDP are based on a panel of 79 countries from 2001 to 2005. Annual data for PPP-adjusted real GDP per capita, which are measured in 2000 international dollars, and CPI indices are taken from the World Bank’s World Development Indicators database. Data for bank credit to the private sector relative to GDP are from the World Bank’s new database on financial development and structure. Data for deposit interest rates are taken from the IMF’s International Financial Statistics database; where deposit interest rates are not available, treasury bill rates are used. Data for trade restrictiveness are taken from the IMF’s trade policy information database, which includes ratings based on tariff structures and nontariff trade barriers. The ratings take the value of 1 to 10, with 10 being the most restrictive in trade regime.

The main data for institutional quality are from the World Bank and Huang (2007). Governance and institutional quality is the simple average of the six measures of institutional development: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption, based on extensive surveys conducted by Kaufmann, Kraay, and Mastruzzi (2007). Credit information and private and public credit bureau coverage (as percent of total adult population) are taken from the World Bank’s Doing Business database. Indexes of shareholder rights and creditor rights are based on La Porta and others (1998) and range from 0 to 6 and 0 to 4, respectively, with higher values being stronger rights.

The instrumental variables (real GDP per capita and total population in 1990, and index of ethnic fractionalization) are taken from the Penn World Tables 6.1 and Alesina and others (2003), respectively. The legal origin dummy for the French, German, and Scandinavian systems is based on the World Bank’s Global Development Network database. Data for the land area in square kilometers is based on Gallup, Sachs, and Mellinger (1999).20

Summary of “Credit Boom” Episodes, 1980-2006

article image

GMM IV Regression Results

(Dependent variable: private sector credit to GDP) 1/

article image

Instrumented: log of real GDP per capita, PPP adjusted. Excluded instruments: Index of ethnic fractionalization, log of real GDP per capita in 1990, log of population in 1990.

Summary Statistics on Key Indicators of Financial Development

(Average of 2001-05, unless noted otherwise)

article image
Sources: World Bank; IMF; and Huang (2007).
18

Following La Porta and others (1998), common-law countries generally protect investors the most, and civil-law countries protect them the least.

19

Contrary to Huang (2007), trade restrictiveness is associated with higher credit-to-GDP ratio. While this may reflect the lack of variation in data, one possible explanation is that countries that are less open are also protective of their domestic banking sector, promoting domestic financing of trade.

20

Data for most of the time invariant variables are obtained from Huang (2007).

  • Aiolfi, Marco, Luis Catão, and Allan Timmerman, 2006, “Common Factors in Latin America’s Business Cycles,IMF Working Paper 06/49 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Alberola Ila, Enrique, and José Manuel Montero, 2006, “Debt Sustainability and Procyclical Fiscal Policies in Latin America,Economía, Vol. 7 (Fall), pp. 15784.

    • Search Google Scholar
    • Export Citation
  • Alesina, Alberto, Arnaud Devleeschauwer, William Easterly, and Sergio Kurlat, 2003, “Fractionalization,Journal of Economic Growth, Vol. 8, No. 2, pp. 15594.

    • Search Google Scholar
    • Export Citation
  • Alier, Max, forthcoming, “Measuring Budget Rigidities in Latin America,IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Banco de la República, 2007, Informe de la Junta Directiva al Congreso de la República, July (Bogotá).

  • Baxter, Marianne, and Robert King, 1999, “Measuring Business Cycles: Approximate Band-Pass Filters for Economic Time Series,Review of Economics and Statistics, Vol. 81, No. 4, pp. 57593.

    • Search Google Scholar
    • Export Citation
  • Bayoumi, Tamim, and Andrew Swiston, 2007, “Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries,IMF Working Paper 07/182 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Becker, Törbjörn, and Paolo Mauro, 2006, “Output Drops and the Shocks that Matter,IMF Working Paper 06/172 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Berg, Andrew, Phillippe Karam, and Douglas Laxton, 2006, “Practical Model-Based Monetary Policy Analysis—A How-To Guide,IMF Working Paper 06/81 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Berg, Andrew, Jonathan Ostry, and Jeromin Zettelmeyer, forthcoming, “What Makes Growth Sustained?IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Braun, Matías, and Ricardo Hausmann, 2003, “Financial Development and Credit Crunches: Latin America and the World,” The Latin American Competitiveness Report 2001–02 (New York: Oxford University Press).

    • Search Google Scholar
    • Export Citation
  • Canales-Kriljenko, Jorge, 2003, “Foreign Exchange Intervention in Developing and Transition Economies: Results of a Survey,IMF Working Paper 03/95 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Caprio, Gerard, and Daniela Klingebiel, 2002, “Episodes of Systemic and Borderline Financial Crises,World Bank Working Paper and database. Available via the Internet: www.worldbank.org.

    • Search Google Scholar
    • Export Citation
  • Carstens, Agustín G., Daniel C. Hardy, and Ceyla Pazarbaşioğlu, 2004, “Avoiding Banking Crises in Latin America,Finance and Development, Vol. 41, No. 3, pp. 3033.

    • Search Google Scholar
    • Export Citation
  • Chalk, Nigel, 2002, “Structural Balances and All That: Which Indicators to Use in Assessing Fiscal Policy,IMF Working Paper 02/101 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Christiano, Lawrence J., and Terry J. Fitzgerald, 2003, “The Band Pass Filter,International Economic Review, Vol. 44, No. 2, pp. 43565.

    • Search Google Scholar
    • Export Citation
  • Clements, Benedict, Christopher Faircloth, and Marijn Verhoeven, 2007, “Public Expenditure in Latin America: Trends and Key Policy Issues,IMF Working Paper 07/21 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Corbae, Dean, and Sam Ouliaris, 2002, “Band Spectral Regression with Trending Data,Econometrica, Vol. 70, No. 3, pp. 10671109.

  • Corbae, Dean, 2006, “Extracting Cycles from Nonstationary Data,” Econometric Theory and Practice: Frontiers of Analysis and Applied Research (Cambridge and New York: Cambridge University Press), pp. 16777.

    • Search Google Scholar
    • Export Citation
  • Cubero, Rodrigo, and Ivanna Vladkova-Hollar, forthcoming, “Equity and Fiscal Policy: Income Distribution Effects of Taxation and Social Spending” (unpublished; Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • de Ferranti, David, Guillermo Perry, William Foster, Daniel Lederman, and Alberto Valdés, 2005, Beyond the City: The Rural Contribution to Development (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • de Ferranti, David, Guillermo Perry, Indermit Gill, J. Luis Guasch, William Maloney, Carolina Sánchez-Páramo, and Norbert Schady, 2003, Closing the Gap in Education and Technology (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • de la Torre, Augusto, Juan Carlos Gozzi, and Sergio Schmukler, 2006, “Capital Market Development: Whither Latin America?World Bank Policy Research Working Paper No. 4156 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Dehesa, Mario, Pablo Druck, and Alexander Plekhanov, 2007, “Relative Price Stability, Creditor Rights, and Financial Deepening,IMF Working Paper 07/139 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Disyatat, Piti, and Gabriele Galati, 2007, “The Effectiveness of Foreign Exchange Market: Intervention in Emerging Market Countries: Evidence from the Czech Koruna,Journal of International Money and Finance, Vol. 26, No. 3, pp. 383402.

    • Search Google Scholar
    • Export Citation
  • Djankov, Simeon, Caralee McLiesh, and Andrei Shleifer, 2006, “Private Credit in 129 Countries.” Available via the Internet: www.doingbusiness.org/documents/private_credit_may07.pdf.

    • Search Google Scholar
    • Export Citation
  • Echeverría, Rubén G., 2000, “Options for Rural Poverty Reduction in Latin America and the Caribbean,CEPAL Review, No. 70 (April), pp. 15164.

    • Search Google Scholar
    • Export Citation
  • Economic Commission for Latin America and the Caribbean, 2006, Social Panorama of Latin America 2006 (Santiago, Chile: ECLAC).

  • Fajnzylber, Pablo, and J. Humberto López, 2007, “Close to Home: The Development Impact of Remittances in Latin America” (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Freije, Samuel, Rosangela Bando, and Fernanda Arce, 2006, “Conditional Transfers, Labor Supply, and Poverty: Microsimulating Oportunidades,Economía, Vol. 7 (Fall), pp. 73124.

    • Search Google Scholar
    • Export Citation
  • Freund, Caroline, and Caglar Özden, forthcoming, “The Effect of China’s Exports on Latin American Trade with the World,” in China’s and India’s Challenge to Latin America (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Gallup, John Luke, Jeffrey Sachs, and Andrew Mellinger, 1999, “Geography and Economic Development,CID Working Paper No. 1 (Cambridge, Massachusetts: Center for International Development).

    • Search Google Scholar
    • Export Citation
  • Garcia, Pablo S., and Claudio Soto, 2006, “Large Hoardings of International Reserves: Are They Worth It?” in External Financial Vulnerability and Preventive Policies (Santiago, Chile: Central Bank of Chile).

    • Search Google Scholar
    • Export Citation
  • Gertler, Paul, Sebastian Martinez, and Marta Rubio-Codina, 2007, “Investing Cash Transfers to Raise Long-Term Living Standards,World Bank Policy Research Working Paper No. 3994 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Gonçalves, Fernando M., forthcoming, “The Optimal Level of Foreign Reserves in Financially Dollarized Countries: The Case of Uruguay,IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • González Rozada, Martín, and Eduardo Levy Yeyati, 2006, “Global Factors and Emerging Market Spreads,IDB Research Department Working Paper No. 552 (Washington: Inter-American Development Bank).

    • Search Google Scholar
    • Export Citation
  • Gourinchas, Pierre-Olivier, Rodrigo Valdés, and Oscar Landerretche, 2001, “Lending Booms: Latin America and the World,NBER Working Paper No. 8249 (Cambridge, Massachusetts: National Bureau of Economic Research).

    • Search Google Scholar
    • Export Citation
  • Guerra de Luna, Alfonso H., and Jessica Serrano Bandala, 2007, “The Domestic Financial Position of the Household Sector in Mexico,in Proceedings of the IFC Conference on Measuring the Financial Position of the Household Sector, Basel, August 30–31, 2006, Volume 2.

    • Search Google Scholar
    • Export Citation
  • Guimarães, Roberto, and Cem Karacadag, 2004, “The Empirics of Foreign Exchange Intervention in Emerging Market Countries: The Cases of Mexico and Turkey,IMF Working Paper 04/123 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Hagemann, Robert, 1999, “The Structural Budget Balance: The IMF’s Methodology,IMF Working Paper 99/95 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Hamilton, James, 1994, Time Series Analysis (Princeton, New Jersey: Princeton University Press).

  • Hodrick, Robert J., and Edward C. Prescott, 1997, “Postwar U.S. Business Cycles: An Empirical Investigation,Journal of Money, Credit and Banking, Vol. 29 (February), pp. 116.

    • Search Google Scholar
    • Export Citation
  • Huang, Yongfu, 2007, “What Determines Financial Development?University of Bristol Department of Economics Discussion Paper No. 05/580 (Bristol, United Kingdom: University of Bristol).

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2000, “Debt-and Reserve-Related Indicators of External Vulnerability.” Available via the Internet: http://www.imf.org/external/np/pdr/debtres/index.htm.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2001, “Issues in Reserves Adequacy and Management.” Available via the Internet: www.imf.org/external/np/pdr/resad/2001/reserve.htm.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2007a, Global Financial Stability Report, October (Washington).

  • International Monetary Fund, 2007b, Regional Economic Outlook: Western Hemisphere, April (Washington).

  • International Monetary Fund, 2007c, World Economic Outlook, April (Washington).

  • International Monetary Fund, 2007d, World Economic Outlook, October (Washington).

  • Izquierdo, Alejandro, and Pablo Ottonello, Ernesto Talvi, forthcoming, “If Latin America Were Chile: A Comment on Structural Fiscal Balances and Public Debt,IDB Working Paper (Washington: Inter-American Development Bank).

    • Search Google Scholar
    • Export Citation
  • Izquierdo, Alejandro, Randall Romero, and Ernesto Talvi, forthcoming, “Business Cycles in Latin America: The Role of External Factors,IDB Working Paper (Washington: Inter-American Development Bank).

    • Search Google Scholar
    • Export Citation
  • Jeanne, Olivier, 2007, “International Reserves in Emerging Market Countries: Too Much of a Good Thing?” Brookings Papers on Economic Activity: 1, pp. 155.

    • Search Google Scholar
    • Export Citation
  • Jeanne, Olivier, and Romain Rancière, 2006, “The Optimal Level of International Reserves in Emerging Market Countries: Formulas and Applications,IMF Working Paper 06/229 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • JPMorgan, 2007, “Local Markets Guide—Global Edition,” Emerging Markets Research(March).

  • Kamil, Herman, 2007, “Is Central Bank Intervention Effective Under Inflation Targeting Regimes? New Evidence for Colombia” (unpublished; Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Kaminsky, Graciela, and Carmen Reinhart, 1996, “The Twin Crises: The Causes of Banking and Balance-of-Payments Problems,International Financial Discussion Paper No. 544, Board of Governors of the Federal Reserve System.

    • Search Google Scholar
    • Export Citation
  • Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi, 2007, “Governance Matters VI: Governance Indicators for 1996–2006,World Bank Policy Research Working Paper No. 4280 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Kiff, John, and Paul Mills, 2007, “Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets,IMF Working Paper 07/188 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, 1998, “Legal Determinants of External Finance,Journal of Finance, Vol. 52, No. 3, pp. 113150.

    • Search Google Scholar
    • Export Citation
  • Lane, Philip R., and Gian Maria Milesi-Ferretti, 2006, “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1990–2004,IMF Working Paper 06/69 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Lederman, Daniel, Marcelo Olarreaga, and Isidro Soloaga, 2007, “The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean.World Bank Policy Research Working Paper No. 4320 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Levine, Ross, 1996, “Stock Markets: A Spur to Economic Growth,Finance and Development, Vol. 33 (March), pp. 710.

  • Lindgren, Carl-Johan, Gillian García, and Matthew I. Saal, 1996, Bank Soundness and Macroeconomic Policy (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Loayza, Norman, Claudio Raddatz, 2006, “The Composition of Growth Matters for Poverty Alleviation,World Bank Policy Research Working Paper No. 4077 (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • López, Ramón, and Alberto Valdés, 2000, “Rural Poverty in Latin America: New Evidence of the Effects of Education, Demographics and Access to Land,Economic Development and Cultural Change, Vol. 49, No. 1, pp. 197212.

    • Search Google Scholar
    • Export Citation
  • Marcel, Mario C., Marcelo Tokman, Rodrigo Valdés, and Paula Benavides, 2001, “Balance Estructural del Gobierno Central Metodología y Estimaciones para Chile: 1987–2000,” Estudios de Finanzas Publicos, September (Santiago, Chile: Budget Office, Ministry of Finance, Government of Chile).

    • Search Google Scholar
    • Export Citation
  • Mulder, Christian, and Matthieu Bussière, 1999, “External Vulnerability in Emerging Market Economies: How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion,IMF Working Paper 09/88 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Österholm, Pär, and Jeromin Zettelmeyer, 2007, “The Effect of External Conditions on Growth in Latin America,IMF Working Paper 07/176 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Perry, Guillermo, Omar Arias, J. Humberto López, William Maloney, and Luis Servén, 2006, Poverty Reduction and Growth: Virtuous and Vicious Circles (Washington: World Bank).

    • Search Google Scholar
    • Export Citation
  • Roache, Shaun, and Ewa Gradzka, forthcoming, “Do Remittances to Latin America Depend Upon the U.S. Business Cycle?IMF Working Paper (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Rodlauer, Markus, and others, forthcoming, “The Caribbean: Challenges of Integration” (