BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 5/2003:
What drives financial crises in emerging markets?
Tuomas Komulainen ()
and Johanna Lukkarila ()
Abstract: The study examines the reasons for financial crises in 31
emerging market countries during 1980-2001. It estimates a probit model
using 23 macroeconomic and financial sector variables. Traditional
variables such as unemployment and inflation, as well as several indicators
of indebtedness such as private sector liabilities and the foreign
liabilities of banks explain currency crises rather well, and it appears
currency crises occur in tandem with banking crises. Indeed, in emerging
market countries vulnerability to crisis is exacerbated by situations
involving large liabilities that permit sudden capital outflows. Increases
in indebtedness followed the liberalisation of capital flows and domestic
financial sectors.
Keywords: currency crises; banking crises; emerging markets; liberalisation; probit model; (follow links to similar papers)
JEL-Codes: F31; F32; F41; F47; (follow links to similar papers)
30 pages, April 5, 2003
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