Banks and liquidity crises in emerging market economies
Journal of Economic Dynamics and Control, 2018, vol. 94, issue C, 43-62
This paper presents and analyzes a simple banking model in which banks have access to international capital markets and domestic asset markets. The model generates two types of equilibria: a no-default equilibrium and a mixed equilibrium. In the no-default equilibrium, all banks are symmetric and always solvent, while in the mixed equilibrium, some banks can be internationally illiquid and default simultaneously. The latter equilibrium captures the basic features of banking crises after financial liberalization in emerging market economies. In this case, a large capital inflow leads to high asset price volatility and magnifies a banking crisis.
Keywords: Banking crises; International capital flows; Asset price (search for similar items in EconPapers)
JEL-codes: F4 E4 G2 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:94:y:2018:i:c:p:43-62
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