Dai, Meixing (2010): External constraint and financial crises with balance sheet effects.
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This paper investigates the dynamic implications of Krugman’s (1999) model of financial crises with balance-sheet effects, which has a considerable impact on the literature as well as the teaching of international financial crisis. By explicitly taking account of wealth accumulation and external equilibrium condition, it is shown that a financial crisis in emerging market economies, instead of being interpreted as a jump from a good to a bad equilibrium with zero investment and zero foreign debt, could be explained as a jump from an unstable dynamic trajectory to a stable one. The dynamic framework illustrates well the analysis of different factors at the origin of financial vulnerability and crisis. By discriminating the financial crises according to the severity of their negative impacts on the domestic economy, the present study also adds some insights in the analysis of policy implications.
|Item Type:||MPRA Paper|
|Original Title:||External constraint and financial crises with balance sheet effects|
|Keywords:||Financial crisis, currency crisis, balance sheet effect, external solvency constraint.|
|Subjects:||F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Date Deposited:||25. Mar 2010 06:11|
|Last Modified:||15. Feb 2013 14:45|
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