During recent decades most financial crises were caused by excessive public-sector expansion. The current Asian crisis, however, had its roots in private-sector over-expansion. In this respect it had more in common with the pre-1914 crises. In this paper we compare and contrast these two sets of financial crises. Many of their initial features--a toppling investment boom, widespread bank failures, financial dislocation and withdrawal of prior capital inflows--were common and prevalent in both eras. We focus here on the differences between the two cases and this centres on the external exchange-rate regime. Prior to 1914, the regime encouraged large-scale gold inflows in the aftermath of crisis, a re-liquification of the economy and interest rates returning rapidly to low levels. Stabilizing expectations are harder to encourage in current circumstances; in their absence the essential alternative is to reduce the burden of foreign debt. Copyright 1998 by Blackwell Publishers Ltd.
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Volume (Year): 1 (1998) Issue (Month): 2 (December) Pages: 261-87 Download reference. The following formats are available: HTML
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