Banking and balance of payments crises: On possible causes of the twin crises

Claudia Buch and Ralph P. Heinrich

No 848, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Banking and balance of payments crises often happen quite simultaneously. We show that the impact of an expected devaluation on the net worth of commercial banks with a short open foreign exchange position speeds up the timing of a balance of payments crisis. We employ an asymmetric information framework in which domestic commercial banks have to pay a positive risk premium on the international capital market which is determined by their net worth. Some stylized facts from selected transition and developing countries are presented in order to gauge the empirical relevance of the effects that we stress.

JEL-codes: F31 F36 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:848

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