Advanced Search
MyIDEAS: Login

Emerging Market Crises: An Asset Markets Perspective

Contents:

Author Info

  • Ricardo J. Caballero
  • Arvind Krishnamurthy

Abstract

Although internal policy mismanagements can be cited in most recent emerging market crises, they seldom account fully for the severity of these crises. The reluctance of international investors to provide the resources that would limit the extent of the reversal almost invariably plays a key role in bringing a previously (over?)-heated economy to a costly halt. Domestic assets experience dramatic depreciation and otherwise solvent investment projects and production, especially in the nontradeables sector, find no financiers and are wastefully shutdown. Ultimately, the reason for this breakdown of a country's access to international capital markets must lie in the inadequacy (real or perceived) of its international collateral. We build a framework where this insufficiency and its consequences stem from microeconomic contractual problems. Fire sales of domestic assets naturally arise as a result of desperate competition for scarce international collateral. This begs the question of why the private sector does not take steps to ensure sufficient international collateral when crises are likely. The answer lies in the presence of a pecuniary externality. We show that contractual problems also lead to a problem of insufficient domestic collateral, which restricts the transfer of surplus arising from the use of international collateral between the users and providers of this international collateral. The interaction between domestic and international collateral also sheds light on when pre-crisis capital flows ought to be regulated and on whether there is scope for currency support measures during the crisis or not.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w6843.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6843.

as in new window
Length:
Date of creation: Dec 1998
Date of revision:
Handle: RePEc:nbr:nberwo:6843

Note: IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Aizenman, Joshua, 1989. "Country Risk, Incomplete Information and Taxes on International Borrowing," Economic Journal, Royal Economic Society, vol. 99(394), pages 147-61, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6843

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.