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Multiple Equilibria, Contagion, and the Emerging Market Crises

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  • Paul R. Masson

Abstract

The paper surveys the types of models producing multiple equilibria in financial markets. It argues that such models are consistent with observed phenomena, such as the greater volatility of financial asset prices than of macroeconomic fundamentals. Alternative explanations are compared with the stylized facts concerning capital flows, portfolio shifts, and exchange rate crises. Implications for crisis prediction and prevention are then discussed.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/164.

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Length: 25
Date of creation: 01 Dec 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/164

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  1. Michael P. Dooley, 1997. "A Model of Crises in Emerging Markets," NBER Working Papers 6300, National Bureau of Economic Research, Inc.
  2. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, Elsevier, vol. 51(1), pages 145-168, June.
  3. Caplin, Andrew & Leahy, John, 1994. "Business as Usual, Market Crashes, and Wisdom after the Fact," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 548-65, June.
  4. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "Paper tigers?: A model of the Asian crisis," European Economic Review, Elsevier, Elsevier, vol. 43(7), pages 1211-1236, June.
  5. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 401-19, June.
  6. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 797-817, August.
  7. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  8. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  9. Boldrin, Michele & Woodford, Michael, 1990. "Equilibrium models displaying endogenous fluctuations and chaos : A survey," Journal of Monetary Economics, Elsevier, Elsevier, vol. 25(2), pages 189-222, March.
  10. Catherine A. Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? a Test," IMF Working Papers 98/154, International Monetary Fund.
  11. Nancy Marion, 1999. "Some Parallels Between Currency and Banking Crises," International Tax and Public Finance, Springer, Springer, vol. 6(4), pages 473-490, November.
  12. Steven N. Durlauf, 1991. "Multiple Equilibria and Persistence in Aggregate Fluctuations," NBER Working Papers 3629, National Bureau of Economic Research, Inc.
  13. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(1), pages 3-37, August.
  14. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market," IMF Working Papers 96/38, International Monetary Fund.
  15. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1687, C.E.P.R. Discussion Papers.
  16. Cole, Harold L. & Kehoe, Timothy J., 1996. "A self-fulfilling model of Mexico's 1994-1995 debt crisis," Journal of International Economics, Elsevier, Elsevier, vol. 41(3-4), pages 309-330, November.
  17. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 545-570, September.
  18. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 3.
  19. Roberto Chang & Andres Velasco, 1998. "The Asian liquidity crisis," Working Paper, Federal Reserve Bank of Atlanta 98-11, Federal Reserve Bank of Atlanta.
  20. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  21. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  22. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  23. Sachs, J. & Tornell, A. & Velasco, A., 1996. "The Mexican Peso Crisis: Sudden Death or Death Foretold?," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-20, C.V. Starr Center for Applied Economics, New York University.
  24. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  25. Carmen M. Reinhart & Vincent R. Reinhart, 2008. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Working Papers 14321, National Bureau of Economic Research, Inc.
  26. Olivier Jeanne & Bernard Bensaïd, 1996. "Fragilité des systèmes de change fixe et contrôle des capitaux," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 123(2), pages 163-174.
  27. Robert Brandon Kahn & Adam Bennett & María Vicenta Carkovic S. & Susan Schadler, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 108, International Monetary Fund.
  28. Herrendorf, Berthold & Valentinyi, Akos & Waldmann, Robert, 1998. "Ruling out Indeterminacy: the Role of Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1858, C.E.P.R. Discussion Papers.
  29. Sweta Chaman Saxena & Valerie Cerra, 2000. "Contagion, Monsoons, and Domestic Turmoil in Indonesia," IMF Working Papers 00/60, International Monetary Fund.
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