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Stories of the Twentieth Century for the Twenty-First

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  • Gourinchas, Pierre-Olivier
  • Obstfeld, Maurice

Abstract

A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century’s first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8518.

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Date of creation: Aug 2011
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Handle: RePEc:cpr:ceprdp:8518

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Keywords: banking crisis; Credit boom; currency crisis; emerging markets; leverage; sovereign default;

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References

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Cited by:
  1. Obstfeld, Maurice, 2012. "Does the Current Account Still Matter?," CEPR Discussion Papers 8888, C.E.P.R. Discussion Papers.
  2. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
  3. Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," Research Department Publications 4782, Inter-American Development Bank, Research Department.
  4. José-Luis Peydró, 2012. "Comment on "Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market"," NBER Chapters, in: NBER Macroeconomics Annual 2012, Volume 27 National Bureau of Economic Research, Inc.
  5. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2012. "Macroprudential policy, countercyclical bank capital buffers and credit supply: Evidence from the Spanish dynamic provisioning experiments," Economics Working Papers 1315, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2013.
  6. Philip R. Lane, 2012. "Financial Globalisation and the Crisis," BIS Working Papers 397, Bank for International Settlements.
  7. Natasa Bilkic & Ben Carreras Painter & Thomas Gries, 2012. "Unsustainable Sovereign Debt - is the Euro Crisis only the Tip of the Iceberg?," Working Papers 56, University of Paderborn, CIE Center for International Economics.

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