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Understanding recent crises in emerging markets

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  • Roberto Chang

Abstract

The world economy is going through a difficult and dangerous period. The recent Brazilian currency meltdown is one more in a series of events that includes the Asian crises of 1997-98 and the Mexican crash in 1994, and there is uncertainty about whether other emerging economies will be infected with the Brazilian virus. ; Dealing with crises in emerging economies is, therefore, an urgent matter. However, what to do about these crises is a source of heated debate. According to the author of this article, much of the confusion arises from the fact that accumulated knowledge about crises in emerging markets has proven inadequate for analyzing recent events. As a consequence, economists have developed new theories intended to shed light on current debates. ; In this article the author classifies the new theories into two main positions. The first, the bad policy view, argues that inappropriate government intervention provided incentives for the private sector to borrow too much and to invest in socially unproductive or excessively risky activities. The second category, the financial panic view, argues that the key issue was a maturity mismatch of assets and liabilities in national financial systems. The article compares the two viewpoints and concludes that the financial panic view has a more solid theoretical foundation and is consistent with a wider range of observations than the bad policy view.

Suggested Citation

  • Roberto Chang, 1999. "Understanding recent crises in emerging markets," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 6-16.
  • Handle: RePEc:fip:fedaer:y:1999:i:q2:p:6-16:n:v.84no.2
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    References listed on IDEAS

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    Cited by:

    1. Moh. Khusaini, 2002. "The Role of Economic Fundamentals in Explaining Indonesian Currency Crisis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0219, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Muhammad Naveed TAHIR & Faran ALI & Dawood MAMOON, 2016. "Appropriate Exchange Rate Regime for Economic Structure of Pakistan," Turkish Economic Review, KSP Journals, vol. 3(4), pages 629-641, December.
    3. Moledina, Amyaz A. & Roe, Terry L. & Shane, Mathew, 2004. "Measuring Commodity Price Volatility And The Welfare Consequences Of Eliminating Volatility," 2004 Annual meeting, August 1-4, Denver, CO 19963, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Bems, Rudolfs & Jönsson, Kristian, 2002. "Financial Crisis in Emerging Markets and the Optimal Bailout Policy," SSE/EFI Working Paper Series in Economics and Finance 520, Stockholm School of Economics, revised 08 Oct 2004.
    5. Guillermo Javier Vúletin, 2002. "Regímenes Cambiarios y Performance Fiscal ¿Generan los Regímenes Fijos Mayor Disciplina que los Flexibles?," Department of Economics, Working Papers 042, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    6. Xinshen Diao & Wenli Li & Erinc Yeldan, 2000. "How the Asian crisis affected the world economy : a general equilibrium perspective," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 35-59.
    7. Chang, Roberto, 2007. "Financial crises and political crises," Journal of Monetary Economics, Elsevier, pages 2409-2420.
    8. Guillermo J. Vuletin, 2004. "Exchange Rate Regimes And Fiscal Performance. Do Fixed Exchange Rate Regimes Generate More Discipline Than Flexible Ones?," Econometric Society 2004 North American Winter Meetings 474, Econometric Society.

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