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The Asian Disease: Plausible Diagnoses, Possible Remedies

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  • Martin Mayer

    (The Jerome Levy Economics Institute)

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    Abstract

    The Asian crisis is a textbook case of the "financial instability hypothesis" first expressed in 1966 by the late Hyman Minsky. It began with what Minsky described as "the economics of euphoria:...The confident expectation of a steady stream of prosperity gross profits [produces a] willingness...to take what would have been considered in earlier times undesirable chances in order to finance the acquisition of additional capital goods...Those that supply financial resources live in the same expectational climate as those that demand them...An essential aspect of a euphoric economy is the construction of liability structures which imply payments that are closely articulated...to cash flows due to income production...Withdrawals on the supply side of financial markets may force demanding units that were under no special strain and were not directly affected by financial stringencies to look for new financing connections. An initial disturbance can cumulate through such third- party or innocent-party bystanders...Financial instability occurs whenever a large number of units resort to extraordinary sources for cash.

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    File URL: http://128.118.178.162/eps/mac/papers/9805/9805015.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 9805015.

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    Length: 41 pages
    Date of creation: 02 Jun 1998
    Date of revision:
    Handle: RePEc:wpa:wuwpma:9805015

    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 41; figures: included
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    Web page: http://128.118.178.162

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    1. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    2. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
    3. Jan A. Kregel, 1998. "Derivatives and Global Capital Flows: Applications to Asia," Economics Working Paper Archive wp_246, Levy Economics Institute.
    4. Guillermo LarraĆ­n & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Publishing.
    5. Robert Litan & William Isaac & William Taylor, 1994. "Financial Regulation," NBER Chapters, in: American Economic Policy in the 1980s, pages 519-572 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Kane, Edward J., 2000. "Capital movements, banking insolvency, and silent runs in the Asian financial crisis," Pacific-Basin Finance Journal, Elsevier, vol. 8(2), pages 153-175, May.
    2. Kane, Edward J., 2000. "The dialectical role of information and disinformation in regulation-induced banking crises," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 285-308, July.
    3. Jomo Kwame Sundaram, 2008. "Obstacles To Implementing Lessons from the 1997-1998 East Asian Crises," Working Papers 66, United Nations, Department of Economics and Social Affairs.
    4. Davidson, Paul, 2000. "Is a Plumber or a New Financial Architect Needed to End Global International Liquidity Problems?," World Development, Elsevier, vol. 28(6), pages 1117-1131, June.

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