Financial Crisis in East Asia: Bank Runs, Asset Bubbles and Antidotes

CSGR Working Paper No. 11/98

42 Pages Posted: 17 Jun 1999

See all articles by Marcus H. Miller

Marcus H. Miller

University of Warwick - Department of Economics; Institute for International Economics; Centre for Economic Policy Research (CEPR)

Pongsak Luangaram

University of Warwick - Department of Economics

Date Written: July 1998

Abstract

Was the East Asian crisis just a creditor panic with a mad scramble for liquidity that brought the banking system to its knees and the region's much-vaunted "economic miracle" to a standstill? Or was the miracle indeed flawed by fundamental problems in asset prices and resource allocation? After a summary of the facts and an outline of various types of financial crisis, we conclude that the truth involves both factors, interacting in a vicious downward spiral. There certainly was panic among the creditors but it was triggered by genuine problems of overinvestment and overvaluation in emerging East Asian economies. Before turning to outline various approaches of crisis prevention and management and a brief account of the future prospects, we discuss how contagion can occur in environments where investors are poorly informed and each looks to the others for guidance. The paper ends with immediate steps that might help resolve the current crises, and with proposed reforms to the international monetary system to prevent a recurrence.

JEL Classification: E65, F41, F42

Suggested Citation

Miller, Marcus H. and Luangaram, Pongsak, Financial Crisis in East Asia: Bank Runs, Asset Bubbles and Antidotes (July 1998). CSGR Working Paper No. 11/98. Available at SSRN: https://ssrn.com/abstract=146965 or http://dx.doi.org/10.2139/ssrn.146965

Marcus H. Miller (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 3048/9 (Phone)
+44 24 7652 3032 (Fax)

Institute for International Economics

1750 Massachusetts Avenue, NW
Washington, DC 20036-1903
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pongsak Luangaram

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

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