The Twin Crises: The Causes of Banking and Balance-of-Payments Problems
57 Pages Posted: 8 Dec 2016 Last revised: 9 Dec 2016
Date Written: June 1, 1999
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: Suggested Citation