The Asian Liquidity Crisis / Roberto Chang, Andres Velasco.

Format:

Book

Author/Creator:

Chang, Roberto.

Contributor:

National Bureau of Economic Research.

Velasco, Andres.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6796.

NBER working paper series no. w6796

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

A country's financial system is internationally illiquid if its potential short term obligations in foreign currency exceed the amount of foreign currency it can have access to in short notice. This condition may be crucial for the existence of financial crises and/or exchange rate collapses (Chang and Velasco 1998a, b). In this paper we argue that the 1997-98 crises in Asia were in fact a consequence of international illiquidity. This follows from an analysis of empirical indicators of illiquidity as well as other macroeconomic statistics. We trace the emergence of illiquidity to financial liberalization, the shortening of the foreign debt structure, and the currency denomination of assets versus liabilities. We explain how financial crises became exchange rate collapses due to a government policy of both fixing exchange rates and acting as lender of last resort. Finally, we outline the policy implications of our view for both preventing crises and dealing with them.

Notes:

Print version record

November 1998.