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Lending of last resort, moral hazard and twin crises. Lessons from the Bulgarian financial crises 1996/1997

Listed author(s):
  • M. Berlemann
  • K. Hristov
  • Nikolay Nenovsky

    ()

    (LEO - Laboratoire d'Economie d'Orléans - Université - CNRS)

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.

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Paper provided by HAL in its series Post-Print with number halshs-00260052.

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Date of creation: 2002
Publication status: Published in William Davidson Institute Working Paper n° 464, 65p. 2002
Handle: RePEc:hal:journl:halshs-00260052
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00260052
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