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Macroeconomic effects of international financial panics

Authors Cook, David E. View this author's profile
Devereux, Michael B.
Issue Date 2000-05-10
Summary 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.
Language English
Format Working paper
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