The Twin Crises: The Causes of Banking and Balance-of-Payments Problems

57 Pages Posted: 8 Dec 2016 Last revised: 9 Dec 2016

See all articles by Carmen Reinhart

Carmen Reinhart

Harvard University

Graciela Kaminsky

National Bureau of Economic Research (NBER); George Washington University - Department of Economics

Date Written: June 1, 1999

Abstract

In the wake of the Mexican and Asian currency turmoil, the subject of financial crises have come to the forefront of academic and policy discussions. This paper analyzes the links between banking and currency crises. The authors find that problems in the banking sector typically precede a currency crisis - the currency crisis deepens the banking crisis, activating a vicious spiral; financial liberalization often precedes banking crises. The anatomy of these episodes suggests that crises occur as the economy enters a recession, following a prolonged boom in economic activity that was fueled by credit, capital inflows, and accompanied by an overvalued currency.

Keywords: banking crisis, currency crash, financial crisis, leading indicators, financial liberalization

JEL Classification: F3, F41, G01

Suggested Citation

Reinhart, Carmen and Kaminsky, Graciela, The Twin Crises: The Causes of Banking and Balance-of-Payments Problems (June 1, 1999). Available at SSRN: https://ssrn.com/abstract=2882512

Carmen Reinhart (Contact Author)

Harvard University ( email )

79 John F. Kennedy Street
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Graciela Kaminsky

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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George Washington University - Department of Economics ( email )

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Washington, DC 20052
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HOME PAGE: http://www.gracielakaminsky.com/

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