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Financial Crises in Emerging Markets: A Canonical Model

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Author Info
Chang, R.
Velasco, A.

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Abstract

We present a simple model that can account for the main features of recent financial crises in emerging markets. The international illiquidity of the domestic financial system is at the center of the problem. Illiquid banks are a necessary and a sufficient condition for financial crises to occur. Domestic financial liberalization and capital flows from abroad (especially of short term) can aggravate the illiquidity of banks and increase their vulnerability to exogenous shocks and shifts in expectations.

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File URL: http://econ.as.nyu.edu/docs/IO/9381/RR98-21.PDF
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Publisher Info
Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 98-21.

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Length: 46 pages
Date of creation: 1998
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Handle: RePEc:cvs:starer:98-21

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Related research
Keywords: CURRENCIES ; MONETARY CRISIS ; MONETARY POLICY ; BANKS;

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Find related papers by JEL classification:
F3 - International Economics - - International Finance
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G2 - Financial Economics - - Financial Institutions and Services

References listed on IDEAS
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    Other versions:
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    Other versions:
  9. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
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  10. Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911 Elsevier. [Downloadable!] (restricted)
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    Other versions:
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