What Drives Financial Crises in Emerging Markets?

30 Pages Posted: 19 Sep 2007

See all articles by Tuomas Komulainen

Tuomas Komulainen

Mandatum Stockbrokers Ltd. - Sampo Group

Johanna Lukkarila

Bank of Finland - Research

Date Written: April 25, 2003

Abstract

The study examines the reasons for financial crises in 31 emerging market countries during 1980-2001. It estimates a probit model using 23 macroeconomic and financial sector variables. Traditional variables such as unemployment and inflation, as well as several indicators of indebtedness such as private sector liabilities and the foreign liabilities of banks explain currency crises rather well, and it appears currency crises occur in tandem with banking crises. Indeed, in emerging market countries vulnerability to crisis is exacerbated by situations involving large liabilities that permit sudden capital outflows. Increases in indebtedness followed the liberalisation of capital flows and domestic financial sectors.

Keywords: currency crises, banking crises, emerging markets, liberalisation, probit model

JEL Classification: F31, F32, F41, F47

Suggested Citation

Komulainen, Tuomas and Lukkarila, Johanna, What Drives Financial Crises in Emerging Markets? (April 25, 2003). BOFIT Discussion Paper No. 5/2003. Available at SSRN: https://ssrn.com/abstract=1015459 or http://dx.doi.org/10.2139/ssrn.1015459

Tuomas Komulainen (Contact Author)

Mandatum Stockbrokers Ltd. - Sampo Group ( email )

Finland

Johanna Lukkarila

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 9 191 24886 (Phone)
+358-9-1832560 (Fax)

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