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The twin crises: The causes of banking and balance of payments problems

Carmen Reinhart () and Graciela Kaminsky ()

MPRA Paper from University Library of Munich, Germany

Abstract: In the wake of the Mexican and Asian currency turmoil, the subject of financial crises has come to the forefront of academic and policy discussions. This paper analyzes the links between banking and currency crises. We find that: problems in the banking sector typically precede a currency crisis--the currency crisis deepens the banking crisis, activating a vicious spiral; financial liberalization often precedes banking crises. The anatomy of these episodes suggests that crises occur as the economy enters a recession, following a prolonged boom in economic activity that was fueled by credit, capital inflows and accompanied by an overvalued currency.

Keywords: banking; crises; credit; currency; crash; stock; prices; capital; flows; exports; recession (search for similar items in EconPapers)
JEL-codes: F30 F41 (search for similar items in EconPapers)
Date: 1999-06
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Published in American Economic Review 3.89(1999): pp. 473-500

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Related works:
Working Paper: Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos (2000) Downloads
Journal Article: The Twin Crises: The Causes of Banking and Balance-of-Payments Problems (1999) Downloads
Working Paper: The twin crises: the causes of banking and balance-of-payments problems (1996) Downloads
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