The Political Economy of International Finance in an Age of Inequality
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The Political Economy of International Finance in an Age of Inequality

Soft Currencies, Hard Landings

Edited by Gerald A. Epstein

The essays in this book describe and analyze the current contours of the international financial system, covering both developed and developing countries, and focusing on the ways in which the current international financial system structures, and is affected by, profound inequalities in the international system. This keen analysis of key topics in international finance takes a heterodox perspective, with focus on the role of inequalities in power in shaping the structure and outcomes in the international sphere.
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Chapter 2: Financial crises among emerging and developing economies in the modern era: A brief history and some stylized themes

Elissa Braunstein

Abstract

This chapter develops a thematic overview of financial crises among emerging and developing economies between 1980 and 2007. It covers four major waves of crises, and then identifies a set of stylized themes emergent in all four. The main narrative is that financial liberalization provides an opening for booms in capital inflows and domestic credit markets. The consequent build-up in financial fragility, driven by largely private speculation and risk-taking, is often swiftly unwound by a crisis, with substantial negative real effects and an (often explosive) increase in public debt. Although fiscal malfeasance is a frequent refrain in mainstream accounts of financial crises, it is typically the public fielding of the bust that inevitably proceeds after the boom, and all the costs associated with it (e.g., nationalizing private debt, recapitalizing banks, and the impact of currency devaluation on the value of foreign currency liabilities) that runs up public debt.

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