Latin America and East Asia in the Context of an Insurance Model of Currency Crises / Menzie D. Chinn, Michael P. Dooley, Sona Shrestha.

Format:

Book

Author/Creator:

Chinn, Menzie D.

Contributor:

Dooley, Michael P.

Shrestha, Sona.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7091.

NBER working paper series no. w7091

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

This paper focuses on the 1995 Latin American and 1997 East Asian crises using an insurance-based model of financial crises. First the model of Dooley (forthcoming) is described. Second, some empirical evidence for an insurance model is presented. The key variables in this approach include the ratio of foreign exchange reserves to bank loans (domestic credit) extended to the private sector, the ability of the private sector to appropriate government assets, and appropriation as measured by capital flight. We argue that the insurance model is consistent with the observed evolution of these variables in the recent crises in Latin America and Asia. Finally, we examine the statistical evidence in favor of the model using panel regressions. We find that the econometric results are consistent with the insurance model, and tend to support this approach over some competing explanations.

Notes:

April 1999.

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