Asset Prices, Collateral Constraints and Balance-of-Payments Crises

Rajesh Singh

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Emerging markets crises experience shows that asset prices decline in advance of balance-of-payments crises, and that firms face credit constraints during crises. This paper presents a model where an anticipated balance-of-payments crisis causes asset prices to decline that in turn trigger firms' collateral constraints to bind. With collateral constraints, self-fulfilling crisis equilibria are shown to exist even when there are no government bailouts. The time of the self-fulfilling run on foreign reserves is mapped with its initial level and the degree of government bailout. Without government bailout, the time of the run conforms to the conventional wisdom: the higher the level of foreign reserves, the later is the crisis. With bailouts, however, this relationship is non-monotonic. When government bailouts are large, the higher the level of foreign reserves, the sooner is the crisis.

Date: 2023-11-02
New Economics Papers: this item is included in nep-cba and nep-fdg
References: Add references at CitEc
Citations:

Downloads: (external link)
https://dr.lib.iastate.edu/server/api/core/bitstre ... 2dd145ffa160/content
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genstf:202311021254320000

Access Statistics for this paper

More papers in ISU General Staff Papers from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().