Foreign Capital Inflow and Twin Crises

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Other Title
  • 外国資金の流入と双子の危機
  • ガイコク シキン ノ リュウニュウ ト フタゴ ノ キキ

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Description

This paper employs a model to explain how short-term foreign capital flows caused the Asian currency crises of 1997 to develop rapidly into severe banking crises in several countries. During the Asian Crisis, the common pattern in different countries was that the outflow of foreign-currency denominated deposits coincided with a sharp depreciation of the domestic currency. Huge payouts for withdrawn foreign deposits soon produced a liquidity crisis for the banking sector. The model presented in this paper shows that if banks experience a sharp increase in short-term, foreign-currency denominated debt, then both the financial system and the value of the domestic currency become extremely fragile.

Journal

  • KOKUSAI KEIZAI

    KOKUSAI KEIZAI 2008 (59), 76-94, 2008

    The Japan Society of International Economics

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