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Liquidity Crises in Emerging Markets: Theory and Policy

Listed author(s):
  • Roberto Chang

    ()

  • Andrés Velasco

    ()

We build a model of financial sector illiquidity in an open economy. Illiquidity –defined as a situation in which a country’s consolidated financial system has potential short-term obligations in foreign currency that exceed the amount of foreign currency it can have access to on short notice– can be associated with self fulfilling bank and/or currency crises. We focus on the policy implications of the model, and study the role of capital inflows and the maturity of external debt, the way in which real exchange rate depreciation can transmit and magnify the effects of bank illiquidity, options for financial regulation, the role of debt and deficits, and the implications of adopting different exchange rate regimes.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120030402114747.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 59.

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Date of creation: 1999
Handle: RePEc:edj:ceauch:59
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  25. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
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  30. Dornbusch, Rudi, 1999. "After Asia: New Directions for the International Financial System," Journal of Policy Modeling, Elsevier, vol. 21(3), pages 289-299, May.
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