In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.
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Length: 68 pages Date of creation: 21 May 2002 Date of revision: Handle: RePEc:wdi:papers:2002-464
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Find related papers by JEL classification: E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
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Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996.
"Contagious Currency Crises,"
NBER Working Papers
5681, National Bureau of Economic Research, Inc.
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Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001.
"Is the crisis problem growing more severe?,"
Economic Policy,
CEPR, CES, MSH, vol. 16(32), pages 51-82, 04.
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