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International Financial Crises

Guido Lorenzoni

Chapter Chapter 12 in Handbook of International Economics, 2014, vol. 4, pp 689-740 from Elsevier

Abstract: This chapter surveys recent research on international financial crises. A financial crisis is characterized by a sudden, dramatic outflow of financial resources from an economy with an open capital account. This outflow may be primarily driven by the expectation of a large nominal devaluation, in a situation in which the domestic monetary-fiscal regime appears inconsistent with a fixed exchange rate. Or the outflow may be driven by a reallocation of funds by foreign and domestic investors, due to a changed perception in the country’s growth prospects, to an increase in the risk of domestic default, or to a shift in investors’ attitudes toward risk. Often times, monetary and financial elements are combined. A drop in domestic asset prices and in the real exchange rate can act as powerful amplifiers of the real effects of the crisis, through adverse balance-sheet adjustments. The chapter surveys research that looks both at the monetary and at the financial side of crises, also discussing work that investigates the accumulation of imbalances preceding the crisis and the scope for preventive policies.

Keywords: Currency crisis; Current account reversal; Sudden stop; Sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: F32 F34 F41 G15 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/B978-0-444-54314-1.00012-4

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