Emerging Markets Crisis An Asset Markets Perspective

Abstract:     
The entire difference between a mild downturn and a devastating crisis is the occurrence of sharp fire sales of domestic assets and possibly foreign exchange and the ensuing collapse in the balance sheets of both the financial and nonfinancial sector. Why and how do such crises materialize? And why doesn`t the private sector take appropriate precautions to avoid the consequences of crises? In this paper we argue that the combination of weak international financial links and underdeveloped domestic financial markets offers a parsimonious account of these and related phenomena present in emerging markets.

Number of Pages in PDF File: 53

Keywords: Capital flows fire sales financial constraints contractual and corporate governance problems balance sheets wasted collateral domestic and foreign spreads excessive leverage banks

JEL Classification: E00 F3 G3 G1

working papers series