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Capital Flows and Crisis: the Role of Credit Market Imperfections

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  • Bloch, Carter

    (University of Aarhus)

Abstract

This paper builds a model of emerging market crises in which firms are credit constrained and the monetary authorities are limited in their access to foreign currency. The effects of these constraints and their interaction are analyzed in a small open economy that is subject to external shocks and in which capital flows derive out of international investors' lending decisions to firms. \ A crisis can occur both directly from a shock, or due to a change in market perceptions. \ The economy, however, is only affected by a change in market perceptions and thus vulnerable to a slowdown in inflows of foreign currency when it has high levels of foreign debt and low holdings of international reserves.

Suggested Citation

  • Bloch, Carter, 2002. "Capital Flows and Crisis: the Role of Credit Market Imperfections," Royal Economic Society Annual Conference 2002 32, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:32
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