Twin Crises in Emerging Markets: The Role of Liability Dollarization and Imperfect Competition in Banking (original) (raw)

Banking and balance of payments crises: On possible causes of the twin crises

1998

Banking and balance of payments crises often happen quite simultaneously. We show that the impact of an expected devaluation on the net worth of commercial banks with a short open foreign exchange position speeds up the timing of a balance of payments crisis. We employ an asymmetric information framework in which domestic commercial banks have to pay a positive risk premium on the international capital market which is determined by their net worth. Some stylized facts from selected transition and developing countries are presented in order to gauge the empirical relevance of the effects that we stress.

Financial Globalization and Banking Crises in Emerging Markets

Open Economies Review, 2011

Bank crises in emerging economies have been a feature of the recent global crisis, and their incidence has increased in the post-Bretton Woods era. This paper investigates the impact of financial globalization on the incidence of systemic bank crises in 20 emerging markets over the years 1976–2002 using measures of de facto and de jure financial openness. An increase in foreign debt liabilitiescontributes to an increase in the incidence of crises, but foreign direct investment and portfolio equity liabilities have the opposite effect. A more liberal de jure capital regime lowers the incidence of banking crises, while a regime of fixed exchange rates increases their frequency. The results of the econometric analysis is consistent with the experience of East European and central Asian emerging markets, which attracted a relatively large proportion of capital flows in the form of debt in recent years and have been particularly hard hit by the global financial crisis.

Banking and Currency Crises: How Common Are The Twins?

2000

The coincidence of having both banking and currency crises associated with the Asian financial crisis has drawn renewed attention to causal and common factors linking the two phenomena. In this paper, we analyse the incidence and underlying causes of banking and currency crises in 90 industrial and developing countries over the 1975-97 period. We measure the individual and joint ("twin")

Currency and Financial Crises in Emerging Market Economies

2004

After experiencing the Asian crisis of 1997-98, numerous studies have been under- taken to explore the mechanisms of how large currency shocks can trigger a financial crisis and large output loss. Many studies suggested multiple equilibria models to understand the dynamics of currency crisis with subsequent financial crisis and large output loss. Yet most of the popular models disregard wage