Soft Currencies, Hard Landings
Edited by Gerald A. Epstein
Chapter 2: Financial crises among emerging and developing economies in the modern era: A brief history and some stylized themes
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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