Emerging Markets Crisis: An Asset Markets Perspective

Arvind Krishnamurthy and Ricardo Caballero ()

No 1999/129, IMF Working Papers from International Monetary Fund

Abstract: The entire difference between a mild downturn and a devastating crisis is the occurrence of sharp fire sales of domestic assets and possibly foreign exchange and the ensuing collapse in the balance sheets of both the financial and nonfinancial sector. Why and how do such crises materialize? And why doesn’t the private sector take appropriate precautions to avoid the consequences of crises? In this paper we argue that the combination of weak international financial links and underdeveloped domestic financial markets offers a parsimonious account of these and related phenomena present in emerging markets.

Keywords: WP; interest rate; mis-valuation of collateral; Capital flows; fire sales; financial constraints; contractual and corporate governance problems; balance sheets; wasted collateral; domestic and foreign spreads; excessive leverage; collateral underprovision; real depreciation; banks; distressed firm; international collateral; collateral constraint; market clearing; clearing condition; Collateral; Financial statements; Asset prices; Asset liquidity; Commercial banks; East Asia (search for similar items in EconPapers)
Pages: 53
Date: 1999-09-01
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Emerging Market Crises: An Asset Markets Perspective (1999)
Working Paper: Emerging Market Crises: An Asset Markets Perspective (1998)
Working Paper: Emerging Market Crises: An Asset Markets Perspective (1998)
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