EconPapers    
Economics at your fingertips  
 

Paper Tigers? A Model of the Asian Crisis

Giancarlo Corsetti (), Paolo Pesenti and Nouriel Roubini ()

No 6783, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops an interpretation of the Asian meltdown focused on moral hazard as the common source of overinvestment, excessive external borrowing, and current account deficits. To the extent that foreign creditors are willing to lend to domestic agents against future bail-out revenue from the government, unprofitable projects and cash shortfalls are re-financed through external borrowing. While public deficits need not be high before a crisis, the eventual refusal of foreign creditors to refinance the country's cumulative losses forces the government to step in and guarantee the outstanding stock of external liabilities. To satisfy solvency, the government must then undertake appropriate domestic fiscal reforms, possibly involving recourse to seigniorage revenues. Expectations of inflationary financing thus cause a collapse of the currency and anticipate the event of a financial crisis. The empirical section of the paper presents evidence in support of the thesis that weak cyclical performances, low foreign exchange reserves, and financial deficiencies resulting into high shares of non-performing loans were at the core of the Asian collapse.

JEL-codes: F31 F34 (search for similar items in EconPapers)
Date: 1998-11
New Economics Papers: this item is included in nep-ifn
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (94) Track citations by RSS feed

Published as European Economic Review, Vol. 43 (1999): 1211-1236.

Downloads: (external link)
http://www.nber.org/papers/w6783.pdf (application/pdf)

Related works:
Journal Article: Paper tigers?: A model of the Asian crisis (1999) Downloads
Working Paper: Paper tigers? A model of the Asian crisis (1998) Downloads
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:nbr:nberwo:6783

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6783

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-11-03
Handle: RePEc:nbr:nberwo:6783