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Banking Sector Strength and the Transmission of Currency Crises

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  • Bruinshoofd,Allard
  • Candelon,Bertrand
  • Raabe,Katharina

    (METEOR)

Abstract

We show that, complementary to trade and financial linkages, the strength of the bankingsector helps explain the transmission of currency crises. Specifically, we demonstrate thatthe Mexican, Thai, and Russian crises predominantly spread to countries with weaknesses intheir banking sectors. At the same time, the role of banking sector strength varies per crisis;where the Mexican crisis spread to countries with a strong presence of foreign banks indomestic credit provision, the Thai crisis disproportionately contaminated countries wherethe banking sector was most sensitive to currency realignments, wh ile the Russian crisisspread to countries with inefficiencies in the banking sector.

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Bibliographic Info

Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 023.

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Date of creation: 2005
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Handle: RePEc:dgr:umamet:2005023

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

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Keywords: macroeconomics ;

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  1. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  2. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises - The Early Warnings of Distress," IMF Working Papers 99/178, International Monetary Fund.
  3. R.T.A. de Haas & I.P.P. van Lelyveld, 2003. "Foreign Bank Penetration and Private Sector Credit in Central and Eastern Europe," DNB Staff Reports (discontinued) 91, Netherlands Central Bank.
  4. Damien Neven, 2002. "Bank Performance in Transition Economies," IHEID Working Papers 07-2002, Economics Section, The Graduate Institute of International Studies.
  5. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  6. Ranil Salgado & Luca Antonio Ricci & Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 00/55, International Monetary Fund.
  7. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. V�gh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
  8. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
  9. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November.
  10. Janice Boucher Breuer, 2004. "An Exegesis on Currency and Banking Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 293-320, 07.
  11. Massimo Sbracia & Andrea Zaghini, 2003. "The Role of the Banking System in the International Transmission of Shocks," The World Economy, Wiley Blackwell, vol. 26(5), pages 727-754, 05.
  12. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
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Cited by:
  1. Candelon, Bertrand, 2008. "A clinical analysis of financial crises," Open Access publications from Maastricht University urn:nbn:nl:ui:27-17125, Maastricht University.

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