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Crises in Emerging Market Economies: A Global Perspective

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  • Guillermo A. Calvo

Abstract

The paper argues that global financial factors played an important role in the capital-inflow episode in Emerging Market economies (EMs), during the early part of the 1990s, and clearly in the Sudden Stop (of capital inflows) crises that took place after the 1998 Russian crisis. Moreover, the paper shows that recovery after crises that exhibit large output loss (more than 5 percent of GDP from peak to trough) occurs in a Phoenix-like fashion: little credit or investment is required. These results strongly suggest that: (1) deep financial crises can be prevented or at least largely alleviated and (2) global institutions and arrangements should be high on the policy agenda. The paper then discusses an Emerging Market Fund (EMF) charged with the task of lowering the incidence of contagion in EM bond prices. In addition, the paper analyzes domestic policies and concludes that they are critical and important in making EMs less vulnerable to shocks but are unlikely to succeed in fully shielding these economies from global financial shocks if not supported by arrangements like the EMF. Finally, two sections of the paper are devoted to discussing some current issues regarding applicable theory and econometrics.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11305.

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Date of creation: May 2005
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Handle: RePEc:nbr:nberwo:11305

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  1. Kaminsky, Graciela L. & Reinhart, Carmen M., 2002. "Financial markets in times of stress," Journal of Development Economics, Elsevier, vol. 69(2), pages 451-470, December.
  2. Guillermo A. Calvo & Alejandro Izquierdo & Rudy Loo-Kung, 2005. "Relative Price Volatility Under Sudden Stops: The Relevance of Balance Sheet Effects," NBER Working Papers 11492, National Bureau of Economic Research, Inc.
  3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," NBER Working Papers 10015, National Bureau of Economic Research, Inc.
    • Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  4. Neumeyer, Pablo Andrés & Perri, Fabrizio, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," CEPR Discussion Papers 4482, C.E.P.R. Discussion Papers.
  5. repec:rus:hseeco:123906 is not listed on IDEAS
  6. Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
  7. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," IDB Publications 6821, Inter-American Development Bank.
  8. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
  9. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  10. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
  11. Enrique G. Mendoza & Ceyhun Bora Durdu, 2006. "Are Asset Price Guarantees Useful for Preventing Sudden Stops? a Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff," IMF Working Papers 06/73, International Monetary Fund.
  12. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejia, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," NBER Working Papers 10520, National Bureau of Economic Research, Inc.
  13. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  14. Guillermo Calvo, 2002. "Globalization Hazard and Delayed Reform in Emerging Markets," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  15. Guillermo A. Calvo & Ernesto Talvi, 2005. "Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile," NBER Working Papers 11153, National Bureau of Economic Research, Inc.
  16. Enrique G. Mendoza, 2005. "Sudden Stops in an Equilibrium Business Cycle Model with Credit Constraints: A Fisherian Deflation of Tobin's Q," 2005 Meeting Papers 307, Society for Economic Dynamics.
  17. Guillermo A. Calvo, 2001. "Capital markets and the exchange rate with special reference to the dollarization debate in Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 312-338.
  18. Arvind Panagariya, 2004. "Miracles and Debacles: In Defence of Trade Openness," The World Economy, Wiley Blackwell, vol. 27(8), pages 1149-1171, 08.
  19. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  20. Kevin Cowan & José De Gregorio, 2007. "International Borrowing, Capital Controls, and the Exchange Rate: Lessons from Chile," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 241-296 National Bureau of Economic Research, Inc.
  21. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  22. Guillermo A. Calvo, 2005. "Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033348, December.
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