IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Balance SHeet Effects, Bailout Guarantees and Financial Crises

  • Martin Schneider
  • Aaron Tornell

Several recent twin' currency and banking crises were preceded by lending booms during which the banking system financed rapid growth of the nontradable (N) sector by borrowing in foreign currency. They were followed by recessions during which a sharp decline in credit especially hurt the N-sector. This paper presents a model that accounts for these stylized facts. A crucial element is that we model a banking system that is simultaneously subject to two distortions typical of international credit markets: bailout guarantees and the imperfect enforceability of contracts. The interaction of these distortions produces unusually fast N-sector growth, together with a real appreciation, during the boom. However, it is also responsible for self-fulfilling twin crises, which have persistent adverse effects on N-sector output.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w8060.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8060.

as
in new window

Length:
Date of creation: Dec 2000
Date of revision:
Publication status: published as Schneider, Martin and Aaron Tornell. "Balance Sheet Effects, Bailout Guarantees And Financial Crises," Review of Economic Studies, 2004, v71(248,Jul), 883-913.
Handle: RePEc:nbr:nberwo:8060
Note: IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Cole, Harold L & Kehoe, Timothy J, 2000. "Self-Fulfilling Debt Crises," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 91-116, January.
  2. Aaron Tornell, 1999. "Common Fundamentals in the Tequila and Asian Crises," Harvard Institute of Economic Research Working Papers 1868, Harvard - Institute of Economic Research.
  3. Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2000. "Capital Markets and the Instability of Open Economies," Working Papers 99.01 update, Swiss National Bank, Study Center Gerzensee.
  5. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sérgio, 2000. "On the Fundamentals of Self-Fulfilling Speculative Attacks," CEPR Discussion Papers 2565, C.E.P.R. Discussion Papers.
  6. Drazen, Allan & Helpman, Elhanan, 1990. "Inflationary Consequences of Anticipated Macroeconomic Policies," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 147-64, January.
  7. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  8. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  9. 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, vol. 89(3), pages 473-500, June.
  10. Ronald I. McKinnon & Huw Pill, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," Working Papers 98004, Stanford University, Department of Economics.
  11. Ricardo J. Caballero & Arvind Krishnamurthy, 1998. "Emerging Market Crises: An Asset Markets Perspective," NBER Working Papers 6843, National Bureau of Economic Research, Inc.
  12. Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers 98-21, C.V. Starr Center for Applied Economics, New York University.
  13. Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1992. "Risk Management: Coordinating Corporate Investment and Financing Policies," NBER Working Papers 4084, National Bureau of Economic Research, Inc.
  14. Frederic S. Mishkin, 1999. "International Capital Movements, Financial Volatility and Financial Instability," NBER Working Papers 6390, National Bureau of Economic Research, Inc.
  15. Kenneth Kasa, 1998. "Borrowing constraints and asset market dynamics: evidence from the Pacific Basin," Pacific Basin Working Paper Series 98-04, Federal Reserve Bank of San Francisco.
  16. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8060. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.