A Model of the Russian Crisis Development

Alexander Andryakov and Gurvich Evsey ()

EERC Working Paper Series from EERC Research Network, Russia and CIS

Abstract: This study focuses on the 'hostage effect,' which enables a government to share the burden of crisis prevention with the private sector. In the most severe situations this mechanism turns out to be the only way for the government to mitigate the crisis. It is demonstrated that the crisis model accounting for the 'hostage effect' implies reversed logic of coordination. As a consequence, standard approaches to curing crises may produce results opposite to those predicted by common sense. We find in particular that the more reserves the government has in this model, the stronger is the adverse effect of the crisis. The sources of the 1998 financial crisis in Russia are discussed. We argue that some of the effects revealed by our model could contribute to the development of this crisis. The model can explain, for instance, the apparently adverse impact of loans provided by the IMF and the World Bank.

Keywords: Russia; financial crisis; coordination failure; bail-out (search for similar items in EconPapers)
JEL-codes: E52 E61 F31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2002-11-28
New Economics Papers: this item is included in nep-cwa, nep-eec, nep-fin and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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