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

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Author Info
George G. Kaufman
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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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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Keywords: Devaluation of currency ; Foreign exchange ; Balance of payments;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. repec:fth:inadeb:321 is not listed on IDEAS
  2. Jeffrey Frankel & Sergio Schmukler, 1996. "Crisis, contagion, and country funds: effects on East Asia and Latin America," Pacific Basin Working Paper Series 96-04, Federal Reserve Bank of San Francisco.
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  3. Glick, Reuven & Rose, Andrew K, 1998. "Contagion and Trade: Why are Currency Crises Regional," CEPR Discussion Papers 1947, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  5. Demirguc-Kunt, Asli & Levine, Ross, 1999. "Bank-based and market-based financial systems - cross-country comparisons," Policy Research Working Paper Series 2143, The World Bank. [Downloadable!]
  6. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(4), pages 463-84, December.
  7. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-20. [Downloadable!]
  8. Goodhart, Charles & Delargy, P J R, 1998. "Financial Crises: Plus ca Change, Plus C'est La Meme Chose," International Finance, Blackwell Publishing, vol. 1(2), pages 261-87, December. [Downloadable!] (restricted)
  9. Giovanni Dell'Ariccia & Enrica Detragiache & Michael Mussa & Barry J. Eichengreen, 1998. "Capital Account Liberalization: Theoretical and Practical Aspects," IMF Occasional Papers 172, International Monetary Fund.
  10. Charles W. Calomiris & Gary Gorton, . "The Origins of Banking Panics: Models, Facts, and Bank Regulation," Rodney L. White Center for Financial Research Working Papers 11-90, Wharton School Rodney L. White Center for Financial Research.
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  11. George G. Kaufman, 1996. "Bank fragility: perception and historical evidence," Working Paper Series, Issues in Financial Regulation WP-96-18, Federal Reserve Bank of Chicago.
  12. Michael D. Bordo & Anna J. Schwartz, 1998. "Under What Circumstances, Past and Present, Have International Rescues of Countries in Financial Distress Been Successful?," NBER Working Papers 6824, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Andrew Crockett, 1997. "Why is financial stability a goal of public policy?," Proceedings, Federal Reserve Bank of Kansas City, pages 7-36. [Downloadable!]
  14. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements. [Downloadable!]
  15. George J. Benston & George G. Kaufman, 1988. "Risk and solvency regulation of depository institutions: past policies and current options," Staff Memoranda 88-1, Federal Reserve Bank of Chicago.
  16. Michael D. Bordo & Barry Eichengreen & Jongwoo Kim, 1998. "Was There Really an Earlier Period of International Financial Integration Comparable to Today?," NBER Working Papers 6738, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August. [Downloadable!] (restricted)
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  18. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany. [Downloadable!]
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  19. Capie, Forrest, 1998. "Can There Be an International Lender-of-Last Resort?," International Finance, Blackwell Publishing, vol. 1(2), pages 311-25, December. [Downloadable!] (restricted)
  20. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June. [Downloadable!] (restricted)
  21. Andrew Crockett, 1997. "Why is financial stability a goal of public policy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-22. [Downloadable!]
  22. George G. Kaufman, 1998. "Central banks, asset bubbles, and financial stability," Working Paper Series WP-98-12, Federal Reserve Bank of Chicago. [Downloadable!]
  23. Robert Flood & Nancy Marion, 1998. "Perspectives on the Recent Currency Crisis Literature," NBER Working Papers 6380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  24. George G. Kaufman, 1996. "Bank failures, systemic risk, and bank regulation," Working Paper Series, Issues in Financial Regulation WP-96-1, Federal Reserve Bank of Chicago.
  25. Craig Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 313-328.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Working Papers 02-12, Bank of Canada. [Downloadable!]
  2. 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. [Downloadable!]
  3. 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. [Downloadable!]
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