Causes of the 1997 Asian Financial Crisis: What Can an Early Warning System Model Tell Us?

Juzhong Zhuang () and J. Malcolm Dowling ()
Additional contact information
Juzhong Zhuang: Asian Development Bank
J. Malcolm Dowling: Melbourne University

No 26, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Using an early warning system (EWS) model, this paper provides more empirical evidence on the causes of the 1997 Asian financial crisis, with a view to discriminate between the two hypotheses of "weak fundamentals" and "investors' panic." The results show that there are strong warning signals of heightened financial vulnerability in each of the five most affected countries from the EWS model prior to the crisis, suggesting that weaknesses in economic and financial fundamentals in these countries played an important role in triggering the crisis. The warning signals point to fundamental weaknesses including real appreciations of domestic currencies, deteriorations in current account positions, excessive external borrowings by banks and currency mismatches in their balance sheets, excessive growth of domestic credit, economic slowdown, and the burst of asset price bubbles.

Keywords: Asian financial crisis; early warning system; financial vulnerability; fundamentals; investors panic (search for similar items in EconPapers)
JEL-codes: F32 F41 G01 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2002-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.adb.org/publications/causes-1997-asian ... stem-model-tell-us-0 Full text (text/html)

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:ris:adbewp:0026

Access Statistics for this paper

More papers in ADB Economics Working Paper Series from Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Contact information at EDIRC.
Bibliographic data for series maintained by Orlee Velarde ().