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Financial Crises in Light of the Asian Experience: Some Theoretical Reconsiderations

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Abstract

The recent financial crises in several emerging market economies only confirm that a satisfactory explanation of financial and currency crises remain elusive. The first-generation crisis model pioneered by Krugman is no longer compelling as many of the actual crises seem to lack the crucial fiscal disequilibriums. Similarly, Obstfeld's "second generation" model, while appropriate for the European Rate Mechanism is at odds with the Mexican peso and Asian crisis. This paper reviews the various currency crisis models to understand the conditions under which an economy can become vulnerable to a currency crisis. Specifically, it argues that the Asian crisis can be best understood from the lenses of the evolving third-generation models.

Suggested Citation

  • Sharma, Shalendra D., 2003. "Financial Crises in Light of the Asian Experience: Some Theoretical Reconsiderations," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 56(2), pages 173-184.
    • Handle: RePEc:ris:ecoint:0159
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    More about this item

    Keywords

    Models of currency crisis; the Asian financial crisis; thirdgeneration models;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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