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|Title: ||Macroeconomic effects of international financial panics|
|Authors: ||Cook, David E.|
Devereux, Michael B.
|Keywords: ||Capital outflows|
Exchange rate depreciations
Capital market panics
|Issue Date: ||10-May-2000 |
|Abstract: ||This paper explores the macroeconomic effects of capital market panics in a small open economy. The model is motivated by the sudden and dramatic capital outflows from East Asian economies in 1997-1998, which led to sharp exchange rate depreciations, followed by a collapse in the real economy, and a large reversal in the position of the current account. Our interpretation of this event follows the literature on `financial fragility', which points to the problems of the maturity mismatch between short term borrowing and long-term investment projects giving rise to the risk of capital market panics. We go beyond this literature, however, in constructing a complete macro model that can reproduce many of the quantitative features of the Asian crisis.|
|Appears in Collections:||ECON Working Papers|
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