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A Model of the Russian Crisis Development

Author

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  • Andryakov Alexander

    ()

  • Gurvich Evsey

    ()

Abstract

This study focuses on the 'hostage effect,' which enables a government to share the burden of crisis prevention with the private sector. In the most severe situations this mechanism turns out to be the only way for the government to mitigate the crisis. It is demonstrated that the crisis model accounting for the 'hostage effect' implies reversed logic of coordination. As a consequence, standard approaches to curing crises may produce results opposite to those predicted by common sense. We find in particular that the more reserves the government has in this model, the stronger is the adverse effect of the crisis. The sources of the 1998 financial crisis in Russia are discussed. We argue that some of the effects revealed by our model could contribute to the development of this crisis. The model can explain, for instance, the apparently adverse impact of loans provided by the IMF and the World Bank.

Suggested Citation

  • Andryakov Alexander & Gurvich Evsey, 2002. "A Model of the Russian Crisis Development," EERC Working Paper Series 02-03e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:02-03e
    as

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    References listed on IDEAS

    as
    1. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
    2. Maurice Obstfeld, 1986. "Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 1-22, February.
    3. M. Dewatripont & E. Maskin, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 541-555.
    4. Christian B. Mulder & Matthieu Bussière, 1999. "External Vulnerability in Emerging Market Economies; How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund.
    5. Amartya Lahiri & Carlos A. Vegh, 2000. "Delaying the Inevitable: Optimal Interest Rate Policy and BOP Crises," NBER Working Papers 7734, National Bureau of Economic Research, Inc.
    6. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 2002. "The Role of Large Players in Currency Crises," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 197-268 National Bureau of Economic Research, Inc.
    7. Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Russia; financial crisis; coordination failure; bail-out;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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