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External constraint and financial crises with balance sheet effects

  • Meixing DAI

This paper examines a model of financial and exchange crises with balance-sheet effects by explicitly taking account of wealth accumulation and external equilibrium condition. We have found that, in a general equilibrium analysis, there are two stationary equilibria. Since foreign debt is always zero at these equilibria, financial crises in emerging market economies cannot be interpreted as jumps between equilibria but between trajectories leading to one equilibrium or another one. The mechanisms of financial crises due to monsoon or spill-over effects are also analysed in this framework.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-02.

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Date of creation: 2009
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Handle: RePEc:ulp:sbbeta:2009-02
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