Includes bibliographical references (p. 32-34).

Introduction -- Insurance against what? : shocks and their costs -- Sound fundamentals and liability structures -- Self-insurance through international reserves -- Conclusion -- Appendex I. Data sources and definitions -- Appendix II. Behavior of different types of financial flow -- Appendix III. A model of optimal reserves.

"Countries face a range of shocks that can contribute to higher volatility in aggregate output and, in extreme cases, to economic crises. The presence of such risks underlies a potential demand for mechanism to soften the blow from adverse economic shocks. Such a protective infrastructure is referred to in this paper as "country insurance." Protective measures that countries can take themselves ("self-insurance") include sound economic policies, robust financial structures, and adequate reserve coverage. Beyond self-insurance, countries have also established regional arrangements that pool risks while, at the multilateral level, the IMF plays a central role through the temporary provision of its resources when shocks create balance of payments difficulties for a member, and through the policy advice it provides under surveillance. The Occasional paper focuses on what countries can do on their own -- that is, on the role of domestic policies -- with respect to country insurance."--Preface