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Financial Crisis, Capital Outflows and Policy Responses: Simple Analytics and Examples from East Asia

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  • Ramkishen Rajan

    () (School of Economics, University of Adelaide, Australia)

Abstract

Financial crises seem to have become the norm rather than the exception since 1992. In recognition of the frequency with which countries seem to be hit by financial crises, any typical undergraduate course in Money and Banking nowadays includes a section on financial crisis in emerging economies. While these texts offer useful and up-to-date discussions on concepts such as financial crises and sterilization of capital flows, there does not seem to be any attempt to link the discussion of these contemporary issues to the age-old analytics of the money market and money multiplier. This paper examines the impact of a crisis of confidence and resultant capital outflows from a small and open economy, and the possible policy options in response to such outflows using simple tools and definitions that will be familiar to any Money and Banking/Intermediate Macroeconomics student. To facilitate the discussion, examples are drawn from the East Asian crisis of 1997-98 (Indonesia, Korea, Malaysia and Thailand), though the analysis remains pertinent to emerging economies in general.

Suggested Citation

  • Ramkishen Rajan, 2003. "Financial Crisis, Capital Outflows and Policy Responses: Simple Analytics and Examples from East Asia," Centre for International Economic Studies Working Papers 2003-11, University of Adelaide, Centre for International Economic Studies.
  • Handle: RePEc:adl:cieswp:2003-11
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    File URL: http://www.adelaide.edu.au/cies/papers/0311.pdf
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    References listed on IDEAS

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    1. Kaminsky, Graciela L. & Leiderman, Leonardo, 1998. "High real interest rates in the aftermath of disinflation: is it a lack of credibility?," Journal of Development Economics, Elsevier, vol. 55(1), pages 191-214, February.
    2. Akira Ariyoshi & Andrei A Kirilenko & Inci Ötker & Bernard J Laurens & Jorge I Canales Kriljenko & Karl F Habermeier, 2000. "Capital Controls; Country Experiences with Their Use and Liberalization," IMF Occasional Papers 190, International Monetary Fund.
    3. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, pages 473-500.
    4. Eckes Alfred E. & Bird Graham & Rajan Ramkishen S. & Canterbery E. Ray & Zaman M. Raquibuz & Taskin Fatma & Zaim Osman, 2000. "Global Economy Quarterly, Issue 2," Global Economy Journal, De Gruyter, vol. 1(2), pages 1-109, December.
    5. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
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    Cited by:

    1. ABDELLAOUI, Okba & Elkhatib, MOHAMMED, 2014. "قياس الآثار التبادلية بين التكتلات الاقتصادية والأزمات حالة المكسيك ضمن تكتل منطقة التجارة الحرة لأمريكا الشمالية للفترة 1980-2012
      [Measuring the effects of reciprocity between the economic blocs a
      ," MPRA Paper 65966, University Library of Munich, Germany, revised 14 Nov 2014.
    2. Alice Ouyang & Ramkishen Rajan & Tom Willett, 2008. "Managing the Monetary Consequences of Reserve Accumulation in Emerging Asia," Global Economic Review, Taylor & Francis Journals, vol. 37(2), pages 171-199.
    3. Bacchetta, Philippe & Mertens, Elmar & van Wincoop, Eric, 2009. "Predictability in financial markets: What do survey expectations tell us?," Journal of International Money and Finance, Elsevier, pages 406-426.
    4. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.

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