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A model of crises in emerging markets

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  • Michael P. Dooley

Abstract

This paper presents a \"first generation\" model of speculative attacks on emerging markets. Credit-constrained governments accumulate liquid assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets. Given this policy regime, a variety of internal and external shocks generate capital inflows followed by anticipated speculative attacks. The model suggests that a common shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country-specific factors determined the timing of speculative attacks. Economic reform programs may also have generated capital inflow/crisis sequences.

Suggested Citation

  • Michael P. Dooley, 1998. "A model of crises in emerging markets," International Finance Discussion Papers 630, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:630
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    References listed on IDEAS

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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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