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Currency crises and foreign credit in emerging markets: credit crunch or demand effect? Author info | Abstract | Publisher info | Download info | Related research | Statistics Galina Hale
Carlos Arteta
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Currency crises of the past decade highlighted the importance of balance-sheet effects of currency crises. In credit-constrained markets such effects may lead to further declines in credit. Controlling for a host of fundamentals, we find a systematic decline in foreign credit to emerging market private firms of about 25% in the first year following currency crises, which we define as large changes in real value of the currency. This decline is especially large in the first five months, lessens in the second year and disappears entirely by the third year. We identify the effects of currency crises on the demand and supply of credit and find that the decline in the supply of credit is persistent and contributes to about 8% decline in credit for the first two years, while the 35% decline in demand lasts only five months.
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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number
2007-02.
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Date of creation: 2007Date of revision:
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Keywords: Financial crises ; This paper has been announced in the following NEP Reports :
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"Are depreciations as contractionary as devaluations? A comparison of selected emerging and industrial economies ,"
International Finance Discussion Papers
737, Board of Governors of the Federal Reserve System (U.S.).
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Barry Eichengreen & Ricardo Hausmann, 1999.
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Tobias Knedlik & Johannes Stöbel, 2006.
"The role of banking portfolios in the transmission from currency crises to banking crises - potential effects of Basel II ,"
IWH Discussion Papers
21-06, Halle Institute for Economic Research.
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