Mô tả:
XI. Currency Crisis and Debt Crisis
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Outline
1.
2.
Currency Crisis
First Generation Crisis Models
Second Generation Crisis Models
Third Generation Crisis Models
Transmission Channels and Contagion
Economic Policy Implications
International Debt Crisis
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1. Currency Crisis
Concept
• A currency crisis is an economic crisis, which triggered
by a sudden devaluation of a free floating currency or by
the collapse of an exchange rate peg (as a consequence
of speculative attacks)
• A currency crisis is often linked to bursting bubbles,
financial crisis and economic crises
• The history of economic, currency, and financial crises is
as old as capitalism itself
- England 1720 South Sea Bubble
- Germany 1873 real estate, railway
- The US 1929 stocks (end of the post war boom)
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1. Currency Crisis
Characteristics of Currency Crisis
• Crises are often linked to positive expectation and the
influx of liquidity
• Financial and banking crises: collapse of the banking
sector or the financial system
• Currency and balances of payments crises: speculative
attacks against at exchange rate peg, which
subsequently collapses
• Strong volatilities in markets
• Stock and real estate markets sink
• Large exchange rate fluctuations
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First Generation Crisis Models
Krugman (1979) Flood và Garber (1984) reasons
• Unsound fundamentals (BWS, Latin America)
• Unsustainable economic policies
Characteristics of the crisis
• Structural deficits are monetarized
• Strong growth of money supply
• Increasing inflation
• Rising current account deficits
• Speculative attacks against the peg
• Loss of foreign reserves
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First Generation Crisis Models
Crisis
• When foreign reserves are depleted or the losses are too
large, this causes the central bank to release the peg
• The devaluation destabilizes the financial sector
• Collapse of BWS (1970s) and Latin America
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Second Generation Crisis Models
Obstfeld (1986) va (1994) reasons:
• Psychological factors (multiple equilibria) EMS crisis
• Credibility of economic policy
Characteristics of the crisis
• Political trade-off between fixed exchange rate and a
expansionary monetary policy (growth and employment)
• Investors assume the priority of domestic employment
• Reversal of capital inflows triggers and interest rate
increase, which again endangers employment
• Exchange rate peg loses its credibility
Crisis
• The crisis is triggered by expections of the financial
markets (speculation against the Bank of England)
• The crisis is fundamentally unjustified
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Third Generation Crisis Models
Krugman (1998) Corsetti/Pesenti/Roubini (1999)
• Sound fundamentals
• But with incentives for speculative investment
• Weak financial system and banking sector
Characteristics of the crisis
• Excessive availability of foreign capital (capital inflow)
(overborrowing)
• Excessive credit growth (overlending)
• Due to implicit public guarantees, potential exchange
rate risk is ignored (moral hazard)
• Speculative bubbles in equity and real estate markets
emerge
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Third Generation Crisis Models
Crisis
• Withdrawal of international capital results in bursting
bubbles and the devaluation of the domestic currency
• The currency denomination of foreign credit and term
transformation worsen the crisis
• The Asia Financial Crisis 1997
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Moral Hazard and Overinvestment
Concept
• Moral hazard arise because an individual or institution
does not bear the full consequences of its actions,
• and therefore has a tendency to act less carefully than it
otherwise would,
• Leaving another party to bear some responsibility for the
consequences of those actions
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Moral Hazard and Overinvestment
Moral hazard and currency crisis
• A fixed exchange rate can suggest that there will be no
currency risk in the future, even if a higher interest level
suggest a devaluation
• In case of crisis, the emerging markets‘ banking sector
are bailed out by IMF, which is anticipated
• Implicit guarantees and ignorance of currency risk
contributes to exessive international borrowing and
lending
• This leads to overinvestment
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Transmission Channels and Contagion
Usually a crisis does not remain limited to one country, there
are several transmission channels
Spillovers
• In economically integrated markets
• Imports of the crisis country decline (goods market
channel)
• Loans from other countries are defaulting (asset market
channel)
• Even in economically not integrated countries
• Whose fundamentals data suffer from weaknesses
• A reassessment of fundamentals take place (new risk
evaluation)
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Economic Policy Implication
Flexible instead of fixed exchange rates (Fisher 2001)
• Since currency crises often happened in countries with
exchange rate pegs (soft pegs), the IMF supports
floating exchange rates in emerging markets to deter
speculative capital inflows
• Emerging markets with fully flexible exchange rates have
to deal with strong appreciations and thereby lower real
growth in face of strong capital inflows
• Officially, many East Asia countries moved towards
flexible exchange rates, unofficially there is still a strong
tendency to stabilize exchange rates (fear of floating)
• Most countries returned to so-called soft pegs (managed
floats)
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2. International Debt Crisis
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Concept
Characteristics of debt crisis
Background and origins of the debt crisis
The emergence of the debt crisis
The management of the debt crisis
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