Financial Crises in Emerging Markets: The Lessons from 1995 / Jeffrey Sachs, Aaron Tornell, Andres Velasco.

Format:

Book

Author/Creator:

Sachs, Jeffrey.

Contributor:

National Bureau of Economic Research.

Tornell, Aaron.

Velasco, Andres.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5576.

NBER working paper series no. w5576

Language:

English

Subjects (All):

International finance.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Financial Crises in Emerging Markets

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Cambridge, Mass. : National Bureau of Economic Research, 1996.

Summary:

In this paper we examine closely the financial events following the Mexican peso devaluation to uncover new lessons about the nature of financial crises. We explore the question of why, during 1995, some emerging markets were hit by financial crises while others were not. To this end, we ask whether there are some fundamentals that help explain the variation in financial crises across countries or whether the variation just reflects contagion. We present a simple model identifying three factors that determine whether a country is more vulnerable to suffer a financial crisis: a high real exchange rate appreciation, a recent lending boom, and low reserves. We find that for a set of 20 emerging markets, differences in these fundamentals go far in explaining why during 1995 some emerging markets were hit by financial crises while others were not. We also find that alternative hypotheses that have been put forth to explain such crises often do not seem to be supported by the data, such as high current account deficits, excessive capital inflows and loose fiscal policies.

Notes:

Print version record

May 1996.