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The Asian Disease: Plausible Diagnoses, Possible Remedies

  • Martin Mayer

    (The Jerome Levy Economics Institute)

Registered author(s):

    The Asian crisis is a textbook case of the "financial instability hypothesis" first expressed in 1966 by the late Hyman Minsky. It began with what Minsky described as "the economics of euphoria:...The confident expectation of a steady stream of prosperity gross profits [produces a] willingness...to take what would have been considered in earlier times undesirable chances in order to finance the acquisition of additional capital goods...Those that supply financial resources live in the same expectational climate as those that demand them...An essential aspect of a euphoric economy is the construction of liability structures which imply payments that are closely articulated...to cash flows due to income production...Withdrawals on the supply side of financial markets may force demanding units that were under no special strain and were not directly affected by financial stringencies to look for new financing connections. An initial disturbance can cumulate through such third- party or innocent-party bystanders...Financial instability occurs whenever a large number of units resort to extraordinary sources for cash.

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    File URL: http://128.118.178.162/eps/mac/papers/9805/9805015.pdf
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    Paper provided by EconWPA in its series Macroeconomics with number 9805015.

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    Length: 41 pages
    Date of creation: 02 Jun 1998
    Date of revision:
    Handle: RePEc:wpa:wuwpma:9805015
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 41; figures: included
    Contact details of provider: Web page: http://128.118.178.162

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    1. Robert Litan & William Isaac & William Taylor, 1994. "Financial Regulation," NBER Chapters, in: American Economic Policy in the 1980s, pages 519-572 National Bureau of Economic Research, Inc.
    2. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    3. J. A. Kregel, 1998. "Derivatives and Global Capital Flows: Applications to Asia," Macroeconomics 9809001, EconWPA.
    4. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
    5. Guillermo LarraĆ­n & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Publishing.
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