A good article on financial crises theories

A good article on financial crises theories - BOFIT...

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BOFIT Discussion Papers Tuomas Komulainen Currency Crisis Theories – Some Explanations for the Russian Case 1999 • No. 1 Bank of Finland Institute for Economies in Transition BOFIT
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ISBN 951-686-900-9 (print) ISSN 1456-4564 (print) ISBN 951-686-901-7 (online) ISSN 1456-5889 (online) Suomen Pankin monistuskeskus Helsinki 1999
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Contents Abstract. .............................................................................................. 5 1 Introduction. .............................................................................. 6 1.1 Background . .............................................................................. 6 1.2 High Capital Mobility and Emerging Markets . ........................ 7 1.3 The Basic Weaknesses of the Russian Economy . ..................... 8 2 Currency Crisis Theories . ....................................................... 11 2.1 Exchange Rate Determination . ............................................... 11 2.2 First Generation Theories . ...................................................... 17 2.3 Second Generation Theories . .................................................. 18 2.4 Spillover-effects and Contagion . ............................................ 20 2.5 Underdevelopment of the Banking Sector . ............................. 24 2.6 Market Segmentation and Herding Behaviour . ...................... 29 3 Conclusion . ............................................................................. 32 Notes . ............................................................................................... 34 References . ....................................................................................... 39
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4 Tuomas Komulainen Institute for Economies in Transition All opinions expressed are those of the author and do not necessarily reflect the views of the Bank of Finland.
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5 Currency crisis theories — some explanations for the Russian case BOFIT Discussion Papers 1/1999 Tuomas Komulainen 1 Currency Crisis Theories – Some Explanations for the Russian Case Abstract The paper examines currency crisis theories and applies them in searching for the main causes of the Russian crisis. We first study the determination of the exchange rate and then the first and second generation theories on currency crisis and finally the recent theoretical discussions of the Asian crisis. The main reason for the Rus- sian crisis was the long-standing federal budget deficit. During the last years the deficits were financed mainly via short-term domestic debt. This created expecta- tions of government insolvency and central bank financing. Moreover, the Russian economy has its own basic weaknesses, which render the country incapable of growth and prone to crisis. The Asian crisis was a trigger for the Russian crisis. Lower prices for Russian export products, inadequate financial regulations and lack of informa- tion in emerging markets in general are factors explaining this contagion effect. But the main mistakes that led to the crisis were those of the Russians themselves - the
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This note was uploaded on 08/06/2009 for the course ECONOMICS ECON305 taught by Professor Alperduman during the Spring '09 term at Izmir University of Economics.

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A good article on financial crises theories - BOFIT...

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