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A Model of the Russian Crisis Development

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Author Info
Andryakov Alexander ()
Gurvich Evsey ()
Abstract

This study focuses on the 'hostage effect,' which enables a government to share the burden of crisis prevention with the private sector. In the most severe situations this mechanism turns out to be the only way for the government to mitigate the crisis. It is demonstrated that the crisis model accounting for the 'hostage effect' implies reversed logic of coordination. As a consequence, standard approaches to curing crises may produce results opposite to those predicted by common sense. We find in particular that the more reserves the government has in this model, the stronger is the adverse effect of the crisis. The sources of the 1998 financial crisis in Russia are discussed. We argue that some of the effects revealed by our model could contribute to the development of this crisis. The model can explain, for instance, the apparently adverse impact of loans provided by the IMF and the World Bank.

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Publisher Info
Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 02-03e.

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Length: 30 pages
Date of creation: 28 Nov 2002
Date of revision:
Handle: RePEc:eer:wpalle:02-03e

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Related research
Keywords: Russia; financial crisis; coordination failure; bail-out;

Other versions of this item:

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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References listed on IDEAS
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  1. Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Piti Disyatat, . "Currency Crises and Foreign Reserves: A Simple Model," IMF Working Papers 01/18, International Monetary Fund.
  3. Robert P. Flood & Olivier Jeanne, 2000. "An Interest Rate Defense of a Fixed Exchange Rate?," IMF Working Papers 00/159, International Monetary Fund.
    Other versions:
  4. Enrico Perotti, 2001. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," William Davidson Institute Working Papers Series 379, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  5. Christian B. Mulder & Matthieu Bussiere, 1999. "External Vulnerability in Emerging Market Economies - How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund. [Downloadable!]
  6. Amartya Lahiri & Carlos A. Vegh, 2000. "Delaying the Inevitable: Optimal Interest Rate Policy and BOP Crises," NBER Working Papers 7734, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 541-55, October. [Downloadable!] (restricted)
  8. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall. [Downloadable!] (restricted)
  9. Dvorkovich Arkady & Gurvich Evsey, 2000. "Interest Rates and Domestic Borrowing Costs in the Medium-Term Perspective," EERC Working Paper Series 99-08e, EERC Research Network, Russia and CIS. [Downloadable!]
  10. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 2001. "The Role of Large Players in Currency Crises," NBER Working Papers 8303, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Maurice Obstfeld, 1986. "Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments," NBER Working Papers 1437, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Bensaid, Bernard & Jeanne, Olivier, 1997. "The instability of fixed exchange rate systems when raising the nominal interest rate is costly," European Economic Review, Elsevier, vol. 41(8), pages 1461-1478, August. [Downloadable!] (restricted)
    Other versions:
  13. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity - Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund. [Downloadable!]
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