Financial Crisis and Credit Crunch as a Result of Inefficient Financial Intermediation—with Reference to the Asian Financial Crisis
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Summary:
This paper develops a model of private debt financing under inefficient financial intermediation. It suggests a mechanism that can generate the following sequence of events observed in the recent Asian crisis: A period of relatively low capital flow despite a steady improvement in economic fundamentals (capital inflow inertia), followed by a fast buildup of capital inflow, and ended with a large capital outflow and domestic credit crunch. Unlike other models requiring large movements in fundamentals or asset prices to explain a financial crisis, this model can exhibit large credit/capital flow swings with moderate changes in the economic and market environment.
Series:
Working Paper No. 1998/127
Subject:
Balance of payments Capital inflows Credit Financial crises Financial institutions Loans Money Nonbank financial institutions
English
Publication Date:
September 1, 1998
ISBN/ISSN:
9781451935998/1018-5941
Stock No:
WPIEA1271998
Pages:
24
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