Capital Flows and Financial Crises: A Comparative Analysis of East Asia (1997-98) and Argentina (2001-02)

Abstract

This paper suggests, first, that a simple theoretical framework is useful in explaining financial crises in emerging economies. Second, it reviews the East Asian financial crises of 1997-98. Third, the paper examines the origins of Argentina's crisis of 2001-02. Fourth, it presents a comparative analysis of both crises, highlighting their similarities and differences. Finally, the conclusions point out the drawbacks of both hard and soft pegs respective to a single foreign currency as well as the need for emerging economies to use capital controls in order to avoid the recurrence of financial crises.

Keywords: East Asia, Argentina, financial crisis, emerging economies, exchange rate, financial markets

JEL Classification: F31, F32, F34, F43