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- Annotation 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.
- 9781451962659 and 1451962657 (Trade Paper)
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