Microsoft Word Thesis Gent (1). doc

 
 
 
 
 
 
 
 
 
 

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Figure 6. Visual representation of bank policies to recover from the financial 
stress 
Source, IMF, This figure is created by the International Monetary Fund Global 
Financial Stability Report/Durable Financial Stability on April 2011, which is 
simply a visual representation of bank policies to recover from the financial 
stress.
Indeed, the IMF background paper Exiting from Monetary Crisis Intervention Measures 
shows that the banks that provided the most liquidity in relation to GDP were the 
European Central Bank (ECB), the Bank of England (BoE), and the Fed, (IMF, 2010). 
However, the authors of this report show some of downsides of the aforementioned 
balance sheet policies, which may create financial risks and distort relative prices of 
credit instruments, as well as central banks may face difficulties of maintaining the 
expanded policy role that they took because of the crisis (IMF, 2010). To this point, 
though, it is difficult to assess the real effectiveness of these intervention measures; 
however, they seem to have helped economies in certain manners. 
As mentioned above, there are some differences between the financial crises in diverse 
countries; hence, now the intervention measures of central banks in emerging market 
economies will be elaborated. It is argued that some of the differences between 

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advanced economies (AE) and emerging market economies (EME) are the degree of 
financial stress which is much lower in EMEs, as well as the stage of policy 
interventions which was much later than in AEs. Because EMEs, including some of 
AEs were having problems mainly with the shortage of foreign liquidity, specifically 
American dollars, they introduced policies to facilitate such liquidity such as relaxing 
borrowing limits, organizing foreign exchange selling auctions, and lowering reserve 
requirements for lending to the private sector, (IMF, 2010).
Furthermore, Akhtar, Lorie, & Petersend (2009) show central banks interventions in 
low-income countries in region such as Caucus and Central Asia and South Asia. The 
authors conclude that excluding Nepal, these regions’ banking systems were only 
indirectly affected by the financial crisis; however, it was caused quite damages. The 
most important shocks, according to this report, in such regions were the inability to 
borrow on external markets for both the public and private sectors. They have also had 
declines in their deposit base because of the declining overall economic activity, the 
value of cash flows, the decline of cash inflows, and the lack of confidence in the 
financial system (Akhtar, et.al, 2009).
Furthermore, In those places where financial markets are weak, “the transmission 
mechanism from policy rates to other interest rates directly affecting aggregate demand 
tends to be weak as well” (Akhtar, et.al, 2009, p.65). In areas like Armenia and Sri 
Lanka, nonetheless, policy rate modifications are more flexible, which is key in guiding 
market rates to their necessary level for inflation objectives, (Akhtar, et.al, 2009). 

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