What drives financial crises in emerging markets?

Tuomas Komulainen, ) and Johanna Lukkarila
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Tuomas Komulainen: Bank of Finland Institute for Economies in Transition BOFIT
): University of Helsinki
Johanna Lukkarila: University of Helsinki

Macroeconomics from EconWPA

Abstract: The study examines the reasons for financial crises in 31 emerging market countries during 1980-2001. It estimates a probit model using 23 macroeconomic and financial sector variables. Traditional variables such as unemployment and inflation, as well as several indicators of indebtedness such as private sector liabilities and the foreign liabilities of banks explain currency crises rather well, and it appears currency crises occur in tandem with banking crises. Indeed, in emerging market countries vulnerability to crisis is exacerbated by situations involving large liabilities that permit sudden capital outflows. Increases in indebtedness followed the liberalisation of capital flows and domestic financial sectors.

Keywords: currency crises; banking crises; emerging markets; liberalisation; probit model (search for similar items in EconPapers)
JEL-codes: F31 F32 F41 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa, nep-fin, nep-ifn and nep-rmg
Date: 2003-04-28
Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript/Franciscan monk; pages: 30 ; figures: included
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0304010

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