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Banking and currency crises and systemic risk: a taxonomy and review

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  • George G. Kaufman
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    Abstract

    Many countries have experienced banking and currency crises in recent years. Although these crises appear to share many common causes and consequences, they have generally been analysed by different sets of economists. This paper develops a common framework, applies this framework to analysing recent crises, evaluates the historical evidence, and suggests potential solutions. Governments are identified as one of the major causes of the crises through first providing poorly structured financial guarantees that both increase fragility and misallocate resources, then pursuing unstable macroeconomic policies that produce losses, and finally attempting to conceal the problems as long as possible before being forced to take corrective actions that, at least in the short run, often exacerbate the costs before restoring equilibrium.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-99-12.

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    Date of creation: 1999
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    Handle: RePEc:fip:fedhwp:wp-99-12

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    Related research

    Keywords: Devaluation of currency ; Foreign exchange ; Balance of payments;

    This paper has been announced in the following NEP Reports:

    References

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    Cited by:
    1. Michael H. Moskow, 2000. "Disruptions in global financial markets: the role of public policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 2-8.
    2. Donald P. Morgan & Kevin J. Stiroh, 1999. "Bond market discipline of banks: is the market tough enough?," Staff Reports 95, Federal Reserve Bank of New York.
    3. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Working Papers 02-12, Bank of Canada.
    4. Kolari, James & Glennon, Dennis & Shin, Hwan & Caputo, Michele, 2002. "Predicting large US commercial bank failures," Journal of Economics and Business, Elsevier, vol. 54(4), pages 361-387.

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