Rather it is to address directly the instability that is introduced through the mismatched capital structure.

I will distinguish between economic policy and the transmission of volatility, and I will argue that policy-making must be constructed in an environment in which excess volatility is kept to a minimum.

a market collapse is nearly always implicit in the structure of the market itself.

It is the structure and behavior of market players that systematically undermines the market, not changes in fundamentals. These only set off the crisis.

It is enough to summarize the key liquidity events that preceded the booms.

They occur instead for two other, related, reasons. First, emerging market borrowers and investors have consistently underestimated the source and magnitude of volatility in emerging financial markets. Second, perhaps as a consequence, borrowers and investors have permitted and even encouraged sovereigns to put into place capital structures that

Since that is the case, any sovereign borrowing strategy that does not implicitly assume a fairly neutral position about the direction of credit spreads can involve a significant increase in volatility—and hence in the probability of distress.

One way of thinking about this is that the more the expected variation in the net flows (i.e., inflows minus outflows), the more volatile a capital structure is.

The Eurodollar market was the name given to the market surrounding the dollar accumulation in the banking system outside the United States during the “dollar glut” period of low U.S. interest rates in the 1960s.