Real Estate Speculation as a Source of Banking and Currency Instability: Lessons from the Asian Crisis

Brian Bentick () and Mervyn Lewis
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Brian Bentick: School of Economics, University of Adelaide, Australia
Mervyn Lewis: School of International Business, The University of South Australia

No 2003-18, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: A central feature of the Asian currency crisis was the vast prior capital inflow into the region, and the later rapid reversal of that movement. In seeking to explain why this outflow of capital took place and was so devastating for the countries concerned, various writers have laid blame upon a combination of connected lending, poor bank supervision, moral hazard and “crony capitalism”. Our emphasis is different. Much of the capital inflow financed a vast over-expansion of commercial real estate development. Plunging real estate values accompanied by severe difficulties in the banking and financial sector have been common occurrences across the region. The argument is that large international portfolio capital flows mediated by banks will usually lead to rapidly appreciating asset prices which will result in banking/currency crises.

Pages: 25 pages
Date: 2003-07
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Citations: View citations in EconPapers (1)

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