Transparency, Liberalization and Financial Crises
AbstractWe investigate the effect of financial liberalization on the probability of a banking crises in economies with poor transparency We construct a model with imperfect information where banks cannot distinguish between aggregate shocks on the one hand, and government’s policy and firms’ quality, on the other. Thus, a sequence of positive shocks or non- transparent policy causes banks to increase their credit above the optimal level given the underlying value of the firms. Once banks discover their large exposure, they are likely to roll-over bad loans rather than declare their losses. This delays the crisis, but increasing its magnitude. Empirical investigation using data on 56 countries from 1977 to 1997 supports the theoretical model. We find that the probability of a crisis is higher in the period following financial liberalization, significantly so in countries with poor transparency.
Download InfoIf 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.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0308008.
Length: 32 pages
Date of creation: 26 Aug 2003
Date of revision:
Note: Type of Document - Acrobat PDF; pages: 32
Contact details of provider:
Web page: http://22.214.171.124
Financial liberalization; transparency; Financial crisis;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F30 - International Economics - - International Finance - - - General
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- G00 - Financial Economics - - General - - - General
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- H0 - Public Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-08-31 (All new papers)
- NEP-IFN-2003-08-31 (International Finance)
- NEP-PBE-2003-08-31 (Public Economics)
- NEP-PKE-2003-08-31 (Post Keynesian Economics)
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.:
- Joseph Zeira, 2000.
"Informational overshooting, booms and crashes,"
Federal Reserve Bank of San Francisco, issue Apr.
- Demirguc-Kent, Asli & Detragiache, Enrica, 1998.
"Financial liberalization and financial fragility,"
Policy Research Working Paper Series
1917, The World Bank.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999.
"Capital Markets and the Instability of Open Economies,"
99.01, Swiss National Bank, Study Center Gerzensee.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2000. "Capital Markets and the Instability of Open Economies," Working Papers 99.01 update, Swiss National Bank, Study Center Gerzensee.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 1999. "Capital Markets and the Instability of Open Economies," CEPR Discussion Papers 2083, C.E.P.R. Discussion Papers.
- Burkhard Drees & Ceyla Pazarbasioglu, 1998.
"The Nordic Banking Crisis,"
IMF Occasional Papers
161, International Monetary Fund.
- Laura E. Kodres & Matthew Pritsker, 1998. "A rational expectations model of financial contagion," Finance and Economics Discussion Series 1998-48, Board of Governors of the Federal Reserve System (U.S.).
- George Kopits & J. D. Craig, 1998. "Transparency in Government Operations," IMF Occasional Papers 158, International Monetary Fund.
- Asli DemirgÃ¼Ã§-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
- Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.