Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises / Guillermo A. Calvo, Alejandro Izquierdo, Ernesto Talvi.

Format:

Book

Author/Creator:

Calvo, Guillermo A.

Contributor:

National Bureau of Economic Research.

Izquierdo, Alejandro.

Talvi, Ernesto.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12101.

NBER working paper series no. w12101

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Phoenix Miracles in Emerging Markets

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

Using a sample of emerging markets that are integrated into global bond markets, we analyze the

collapse and recovery phase of output collapses that coincide with systemic sudden stops, defined as periods of skyrocketing aggregate bond spreads and large capital flow reversals. Our findings indicate the presence of a very similar pattern across different episodes: output recovers with virtually no recovery in either domestic or foreign credit, a phenomenon that we call Phoenix Miracle, where output "rises from its ashes", suggesting that firms go through a process of financial engineering to restore liquidity outside the formal credit markets. Moreover, we show that the US Great Depression could be catalogued as a Phoenix Miracle. However, in contrast to the US Great Depression, EM output collapses occur in a context of accelerating price inflation and falling real wages, casting doubts on price deflation and nominal wage rigidity as key elements in explaining output collapse, and suggesting that financial factors are prominent for understanding these collapses.

Notes:

Print version record

March 2006.