Advanced Search
MyIDEAS: Login to save this article or follow this journal

The crisis of 1998 and the role of the central bank

Contents:

Author Info

  • David A. Marshall
Registered author(s):

    Abstract

    Following the Russian default and devaluation in August 1998, financial markets were characterized by a withdrawal of liquidity, a flight to the safest assets, increased concerns about credit quality, and large declines in asset values. However, the crisis ended following a rather modest interest rate cut by the Federal Reserve. Why did the central bank's action have this effect? This article argues that the crisis was an episode of potential coordination failure, triggered by, but distinct from, the events in Russia. The Federal Reserve's action signaled a policy change that serve to eliminate the coordination failure equilibrium.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2001/1qepart1.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (2001)
    Issue (Month): Q I ()
    Pages: 2-23

    as in new window
    Handle: RePEc:fip:fedhep:y:2001:i:qi:p:2-23:n:v.25no.1

    Contact details of provider:
    Postal: P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834
    Phone: 312/322-5111
    Fax: 312/322-5515
    Email:
    Web page: http://www.chicagofed.org/
    More information through EDIRC

    Order Information:
    Email:
    Web: http://www.chicagofed.org/webpages/publications/print_publication_order_form.cfm

    Related research

    Keywords: Financial crises ; Banks and banking; Central;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Christiano, Lawrence J. & G. Harrison, Sharon, 1999. "Chaos, sunspots and automatic stabilizers," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 3-31, August.
    2. Hall, Robert E., 2000. "Reorganization," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 1-22, June.
    3. Lawrence J. Christiano & Christopher Gust, 2000. "The expectations trap hypothesis," Working Paper 0004, Federal Reserve Bank of Cleveland.
    4. Kultti, Klaus, 1998. "Scale returns of a random matching model," Economics Letters, Elsevier, vol. 58(3), pages 277-280, March.
    5. Roger Lagunoff & Stacey L. Schreft, 1999. "Financial Fragility with Rational and Irrational Exuberance," Macroeconomics 9904011, EconWPA.
    6. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
    7. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    8. Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," Cowles Foundation Discussion Papers 1215, Cowles Foundation for Research in Economics, Yale University.
    9. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
    10. V.V. Chari & Lawrence J. Christiano & Martin Eichenbaum, 1996. "Expectations, traps and discretion," Working Papers in Applied Economic Theory 96-04, Federal Reserve Bank of San Francisco.
    11. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
    12. Roberto Chang & Andres Velasco, 1998. "The Asian liquidity crisis," Working Paper 98-11, Federal Reserve Bank of Atlanta.
    13. Burnside, A Craig & Eichenbaum, Martin & Rebelo, Sérgio, 2000. "On the Fundamentals of Self-Fulfilling Speculative Attacks," CEPR Discussion Papers 2565, C.E.P.R. Discussion Papers.
    14. Evans, Charles L. & Marshall, David A., 1998. "Monetary policy and the term structure of nominal interest rates: Evidence and theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 53-111, December.
    15. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
    16. V. V. Chari & Patrick J. Kehoe, 2000. "Financial crises as herds," Working Papers 600, Federal Reserve Bank of Minneapolis.
    17. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Bryan Routledge & Stanley Zin, . "Model Uncertainty and Liquidity," GSIA Working Papers 2001-E17, Carnegie Mellon University, Tepper School of Business.
    2. Marshall, David A., 2002. "Financial crises and coordination failure: A comment," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 547-555, March.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedhep:y:2001:i:qi:p:2-23:n:v.25no.1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernie Flores).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.