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6 - International Capital Inflows, Domestic Financial Intermediation, and Financial Crises under Imperfect Information
- Edited by Reuven Glick, Federal Reserve Bank of San Francisco, Ramon Moreno, Federal Reserve Bank of San Francisco, Mark M. Spiegel, Federal Reserve Bank of San Francisco
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- Book:
- Financial Crises in Emerging Markets
- Published online:
- 04 August 2010
- Print publication:
- 23 April 2001, pp 196-237
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Summary
INTRODUCTION
Recent financial crises in emerging markets have been preceded by periods of large capital inflows and expansions of the domestic banking sector. In the aftermath of these crises, economic growth has fallen sharply and, in some cases, has been slow to recover. Many of the recent crises have been associated with implicit guarantees by sovereign governments of foreign currency debts accumulated by the private sector. Recently several economists, notably Calvo (1998a), have observed that these crises evolve through complicated interactions between domestic financial sectors, international lenders, and national governments. Financial crises have often been characterized by concurrent banking and currency crises. Recent experience suggests that banking crises are not necessarily just an outcome of a collapsing exchange rate regime. Instead, the source of a financial crisis may be found in the interaction between the microeconomics of private financial intermediation and government macroeconomic policies.
In this chapter we propose a theoretical model of the dynamics of bank lending, domestic production, and the accumulation of foreign currency liabilities by domestic financial intermediaries that ultimately leads to a financial crisis. These dynamics derive from the introduction of an agency problem in domestic financial intermediation that originates in an informational advantage for domestic banks in domestic lending and government provision of insurance to private financial activities. The equilibrium for the model economy predicts twin banking and currency crises that end a period of high gross domestic output growth and inflows of foreign capital.
8 - Reflections on the fiscal implications of a common currency
- Edited by Alberto Giovannini, Colin Mayer
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- Book:
- European Financial Integration
- Published online:
- 04 August 2010
- Print publication:
- 04 April 1991, pp 221-244
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Summary
Introduction: sense and nonsense in the Delors Report
The much increased likelihood of significant advances in European monetary integrations – and even of European monetary union in the mediumterm future – has not surprisingly shifted the spotlight onto the need for coordination of fiscal policies as a complement to monetary unification. The Delors Report (1989) made much of the fiscal implications of the movement towards a greater degree of rigidity of nominal exchange rates among participants in the exchange rate arrangements of the European Monetary System (EMS).
A monetary union would require a single monetary policy and responsibility for the formulation of this policy would consequently have to be vested in one decision-making body. In the economic field a wide range of decisions would remain the preserve of national and regional authorities. However, given their potential impact on the overall domestic and external economic situation of the Community and their implications for the conduct of a common monetary policy, such decisions would have to be placed within an agreed macro-economic framework and be subject to binding procedures and rules. This would permit the determination of an overall policy stance for the Community as a whole, avoid unsustainable differences between individual member countries in public sector borrowing requirements and place binding constraints on the size and the financing of budget deficits.
(Delors Report, 1989, p. 18)No deficits, please
There are frequent further references in the Delors Report to the need to control national public sector deficits and in a number of places the Report becomes rather specific about the constraints to be imposed on national budgetary policy.