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Real Estate Speculation as a Source of Banking and Currency Instability: Lessons from the Asian Crisis

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  • Brian Bentick

    ()
    (School of Economics, University of Adelaide, Australia)

  • Mervyn Lewis

    (School of International Business, The University of South Australia)

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    Abstract

    A central feature of the Asian currency crisis was the vast prior capital inflow into the region, and the later rapid reversal of that movement. In seeking to explain why this outflow of capital took place and was so devastating for the countries concerned, various writers have laid blame upon a combination of connected lending, poor bank supervision, moral hazard and “crony capitalism”. Our emphasis is different. Much of the capital inflow financed a vast over-expansion of commercial real estate development. Plunging real estate values accompanied by severe difficulties in the banking and financial sector have been common occurrences across the region. The argument is that large international portfolio capital flows mediated by banks will usually lead to rapidly appreciating asset prices which will result in banking/currency crises.

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    File URL: http://www.adelaide.edu.au/cies/papers/0318.pdf
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    Bibliographic Info

    Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2003-18.

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    Length: 25 pages
    Date of creation: Jul 2003
    Date of revision:
    Handle: RePEc:adl:cieswp:2003-18

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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    2. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994. "The Capital Inflows Problem: Concepts And Issues," Contemporary Economic Policy, Western Economic Association International, vol. 12(3), pages 54-66, 07.
    3. Bentick, B L, 1969. "Foreign Borrowing, Wealth, and Consumption: Victoria 1873-93," The Economic Record, The Economic Society of Australia, vol. 45(111), pages 415-31, September.
    4. Davidson, Paul, 1997. "Are Grains of Sand in the Wheels of International Finance Sufficient to Do the Job When Boulders Are Often Required?," Economic Journal, Royal Economic Society, vol. 107(442), pages 671-86, May.
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