Financial Crisis and Credit Crunch As a Result of Inefficient Financial Intermediation
AbstractThis paper develops a model of private debt financing under inefficient financial intermediation. It suggests a mechanism that can generate the following sequence of events observed in the recent Asian crisis: A period of relatively low capital flow despite a steady improvement in economic fundamentals (capital inflow inertia), followed by a fast buildup of capital inflow, and ended with a large capital outflow and domestic credit crunch. Unlike other models requiring large movements in fundamentals or asset prices to explain a financial crisis, this model can exhibit large credit/capital flow swings with moderate changes in the economic and market environment.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 98/127.
Date of creation: 01 Sep 1998
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