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Book part
Publication date: 2 March 2011

Willi Semmler and Aleksandr V. Gevorkyan

Emerging markets are said to have sustained relatively well in the recent global crisis. There are several factors that help explain this popular view, such as, for…

Abstract

Emerging markets are said to have sustained relatively well in the recent global crisis. There are several factors that help explain this popular view, such as, for example, perceived separation from key international financial centres. Still a lot is to be digested in the crisis aftermath with immediate implications for financial markets and real economy. This chapter offers a unique insight into dynamics within transition economies via an extended blended fiscal–monetary policy rules model with possibility of foreign reserves targeting and foreign currency-denominated debt dynamics. Calibration is based on actual data and is done under various targets and financial risk conditions. Prudent monetary policy and fiscal policy initiatives within current context drive the choice of targets. That may help dampen negative impacts of the crisis and thwart potential currency run. This chapter advances three possible post-crisis scenarios, each with unique solution for reserves, exchange rate, sustainable debt and output levels. Categorizing between net exporters and net importers based on countries' external positions, group-specific results are derived. While both groups are susceptible to exchange-rate risk affected by a multitude of shocks due to their fragile financial system, net importers risk high inflation, but net exporters over-borrowing. This chapter contributes to the literature on global financial crisis, macroeconomic policy, and role of nominal targets and foreign reserves in emerging markets.

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The Impact of the Global Financial Crisis on Emerging Financial Markets
Type: Book
ISBN: 978-0-85724-754-4

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Book part
Publication date: 17 December 2003

Stephen A. Kane and Mark L. Muzere

Our paper presents an extension of the Diamond-Dybvig (1983) model of bank runs to an open market economy. We examine domestic banks that are subject to potential runs by…

Abstract

Our paper presents an extension of the Diamond-Dybvig (1983) model of bank runs to an open market economy. We examine domestic banks that are subject to potential runs by domestic depositors who worry that they will not be able to be repaid in full, because the domestic banks may not be able to refinance in the international financial markets. A loss in confidence in the banking system might precipitate a bank run. A bank run might be costly to safety net guarantors, for example, the central bank. Further, a bank run might lead to a breaking of the fixed exchange rate. Our model shows that adding central bank and International Monetary Fund guarantees, increasing long term debt as well as more equity financing reduces financial fragility, but consistent with economic intuition, these policy levers cannot eliminate the possibility of a bank run or a banking crisis leading to a currency crisis.

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Research in Finance
Type: Book
ISBN: 978-1-84950-251-1

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Book part
Publication date: 17 August 2011

Biswa Nath Bhattacharyay

Several developing economies witnessed a large number of systemic financial and currency crises since the 1980s that resulted in severe economic, social, and political…

Abstract

Several developing economies witnessed a large number of systemic financial and currency crises since the 1980s that resulted in severe economic, social, and political problems. The devastating impact of the 1982 and 1994–1995 Mexican crises, the 1997–1998 Asian financial crisis, the 1998 Russian crisis, and the ongoing financial crisis of 2008–2009 suggests that maintaining financial sector stability through reduction in vulnerability is highly crucial. The world is now witnessing an unprecedented systemic financial crisis originated from the USA in September 2008 together with a deep worldwide economic recession, particularly in developed countries of Europe and North America. This calls for devising and using on a regular basis an appropriate and effective monitoring and policy formulation system for detecting and addressing vulnerabilities leading to crisis. This chapter proposes a macroprudential/financial soundness monitoring, analysis, and remedial policy formulation system that can be used by most developing countries with or without crisis experience as well as with limited data. It also discusses a process for identifying and compiling a set of leading macroprudential/financial soundness indicators. An empirical illustration using Philippines data is presented. There is an urgent need for increased coordination, collaboration, and partnership among central banks, banking and financial market supervision agencies, and ministries of finance, economic, and planning for proper macroprudential monitoring. A high-level national financial stability committee under the auspices of the head of the state as well as a ‘‘regional financial stability board’’ needs to be established to complement and support the activities of an “international stability board.”

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Article
Publication date: 1 January 2001

K. Pilbeam

Gives and overview of the East Asian financial crisis, focusing on the seven countries most directly involved, and the underlying reasons for its magnitude. Examines the…

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Abstract

Gives and overview of the East Asian financial crisis, focusing on the seven countries most directly involved, and the underlying reasons for its magnitude. Examines the 1991‐1999 economic growth rates, inflation rates and current account positions in the area and asserts that the deterioration of macroeconomic fundamentals was insufficient to explain it. Relates a number of external factors in the crisis to some research models and argues that the poor regulation and control of the banking system, coupled with an inflow of foreign investment, which investors wrongly believed to be government guaranteed, caused a “bubble” in share and property prices. Describes the collapse of companies, currency values and share/property prices which followed, exacerbated by a panicky withdrawal of foreign funds, speculative activity and government policy errors. Lists the objectives of and instruments used by the IMF programme and asks if it was too harsh e.g. on bank closures. Considers the lessons of the crisis and its implications for the Basle capital adequacy rules and the imposition of capital controls.

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Managerial Finance, vol. 27 no. 1/2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 September 2014

Gregory N. Price and Juliet U. Elu

The purpose of this paper is to consider whether regional currency integration in sub-Saharan Africa ameliorates global macroeconomic shocks by considering the impact of…

Abstract

Purpose

The purpose of this paper is to consider whether regional currency integration in sub-Saharan Africa ameliorates global macroeconomic shocks by considering the impact of the 2008-2009 global financial crisis on economic growth. This suggests that Central Africa Franc Zone (CFAZ) eurocurrency union membership amplifies the effects of global business cycles in sub-Saharan Africa.

Design/methodology/approach

The authors estimate the parameters of a quantity theory model of economic growth within a Generalized Estimating Equation (GEE) Framework.

Findings

Parameter estimates from GEE specifications reveal that the contraction in credit during the financial crisis of 2008-2009 had larger adverse growth effects on sub-Saharan African countries who were members of the CFAZ eurocurrency union. The authors also find that sub-Saharan African countries who were members of the CFAZ eurocurrency union were more likely to experience a contraction in credit.

Originality/value

As far as the authors can discern, no existing empirical growth models use a GEE framework to estimate parameters of interest. The GEE parameter estimates are distribution-free, robust with respect to unknown forms of heteroskedasticity, and control for a wide variety of error structures that can induce bias in panel data parameter estimates.

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Journal of Economic Studies, vol. 41 no. 5
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 April 2006

Animesh Ghoshal

To examine in depth one of the currency crises proliferating in emerging markets during the last decade.

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Abstract

Purpose

To examine in depth one of the currency crises proliferating in emerging markets during the last decade.

Design/methodology/approach

Three “generations” of currency crisis models are used to identify vulnerabilities facing the Turkish economy in the period 1999‐2000, leading up to the crisis. The IMF‐backed stabilization program, which attempted to use an active crawling peg as an inflation anchor, is reviewed critically. The specific events triggering the onset of the two crises in 2000 and 2001 are analyzed.

Findings

The crisis is seen to be a consequence of capital inflows, real currency appreciation, increasing external vulnerability, and the rapid exit of capital.

Research limitations/implications

It is concluded that it is a mistake for emerging economies to liberalize the financial system before implementing adequate supervisory measures, and to adopt a crawling peg which is not supported by fiscal reform.

Originality/value

The paper adds to the extensive examination of currency crises, and integrates macroeconomic and microeconomic approaches. The Turkish crisis can be viewed as a learning experience that policy makers in other developing nations could avoid by following the guidelines and conclusions given.

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International Journal of Emerging Markets, vol. 1 no. 2
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 1 June 2002

Kooros Maskooki

Mexico’s 1994 peso devaluation and ensuing crisis surprised the markets and caught international markets and many policy makers off‐guard. Some of the contributing factors…

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3522

Abstract

Mexico’s 1994 peso devaluation and ensuing crisis surprised the markets and caught international markets and many policy makers off‐guard. Some of the contributing factors were due to structural deficiencies and institutional rigidities, while others dealt with public policy issues. In addition, Mexico’s membership to the North American Free Trade Agreement (NAFTA), and ensuing rapid trade liberalization and deregulation of capital market and banking, were paramount to the peso crisis. Financial deregulation in Mexico, as in Korea and other crisis countries of Asia, took place before adequate, prudential regulation and supervision were in place. The result was excessive build‐up of bank credits driven by moral hazard. This paper deals with various factors leading to the peso crisis and presents the logical sequence of the unfolding of the events by analyzing the structural and institutional factors. Also, major developments in the post‐crisis period are discussed.

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European Business Review, vol. 14 no. 3
Type: Research Article
ISSN: 0955-534X

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Article
Publication date: 1 February 2001

Anghel N. Rugina

Examines the economy of Southeast Asia during the period 1997 to 1999 against a background of socio‐economic theory and a transition from disequilibrium to general stable…

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1267

Abstract

Examines the economy of Southeast Asia during the period 1997 to 1999 against a background of socio‐economic theory and a transition from disequilibrium to general stable and equilibrium conditions. Discusses solutions towards establishing self‐regulating mechanisms needed for a free, just and stable economy and society: reform of officially organized securities commodities and foreign exchange makets; reform of the public budget and budgetary policies; and reform of the foreign exchange system and internaitonal commercial and financial relations.

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International Journal of Social Economics, vol. 28 no. 1/2
Type: Research Article
ISSN: 0306-8293

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Book part
Publication date: 23 December 2005

Mukund Narayanamurti and Jonathan A. Batten

Post-crisis policy measures in Asia have focussed on banking sector and market reform. The paper argues that in order to propel growth, banking and market reform in Asia…

Abstract

Post-crisis policy measures in Asia have focussed on banking sector and market reform. The paper argues that in order to propel growth, banking and market reform in Asia must be undertaken with the view that they are not mutually exclusive competitive tradeoffs. Rather banks and markets must be viewed as complementary supportive pillars in a financial system. Additionally, legal and functional reform must be undertaken simultaneously. The paper proposes that a likely consequence of doing so will enable creating a four-pillared multi-dimensional growth paradigm in the region to help restore and promote growth.

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Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

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Article
Publication date: 1 February 2005

Michael Sakbani

To provide a systematic analysis of the contrasts, imbalances and suggestions for corrective action in the present globalized economic system and monetary and financial

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2355

Abstract

Purpose

To provide a systematic analysis of the contrasts, imbalances and suggestions for corrective action in the present globalized economic system and monetary and financial order in the framework of a conference organized by Webster University, Geneva (Switzerland) dealing with the outlook for international order.

Design/methodology/approach

The paper is divided into two parts. The first provides an overview of the general characteristics of the globalized economy, of the interdependence of national and international orders and policy making and the issue of investments, technology transfer and global business. The second part contains a more detailed analysis of the international monetary and financial order, including the evolving role of the International Monetary Fund (IMF). While the paper provides a rigorous analysis of the institutional and policy issues, the analysis and the conclusions are accessible also to the non‐specialized reader.

Findings

The paper focuses on the inconsistencies and asymmetries in the working of the international economic and monetary order and of the policies of the principal international organizations with respect to different groups of countries, and in particular the advanced, developed countries, on the one hand, and the developing countries, on the other hand. The corrective measures suggested by the author are in the interests of both groups of countries and thus of the system as a whole.

Originality/value

The paper provides suggestions for improvements in the economic and monetary order of a globalised world on the basis of systematic policy analysis, anchored in economic theory, rather than political rhetoric.

Details

Foresight, vol. 7 no. 1
Type: Research Article
ISSN: 1463-6689

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