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Preventing Currency Crises in Emerging Markets

Economists and policymakers are still trying to understand the lessons recent financial crises in Asia and other emerging market countries hold for the future of the global financial system. In this timely and important volume, distinguished academics, officials in multilateral organizations, and public and private sector economists explore the causes of and effective policy responses to international currency crises.

Topics covered include exchange rate regimes, contagion (transmission of currency crises across countries), the current account of the balance of payments, the role of private sector investors and of speculators, the reaction of the official sector (including the multilaterals), capital controls, bank supervision and weaknesses, and the roles of cronyism, corruption, and large players (including hedge funds).

Ably balancing detailed case studies, cross-country comparisons, and theoretical concerns, this book will make a major contribution to ongoing efforts to understand and prevent international currency crises.

720 pages | 88 line drawings, 139 tables | 6 x 9 | © 2002

National Bureau of Economic Research Conference Report

Economics and Business: Economics--International and Comparative

Table of Contents

Sebastian Edwards and Jeffrey A. Frankel

I. The Current Account and Vulnerability to Crisis
1. Does the Current Account Matter?
Sebastian Edwards

Comment: Alejandro M. Werner
Discussion Summary

2. Are Trade Linkages Important Determinants of Country Vulernability to Crises?
Kristin J. Forbes

Comment: Federico Sturzenegger
Discussion Summary

II. International Financial Players and Contagion

3. What Hurts Emerging Markets Most? G3 Exchange Rate or Interest Rate Volatility
Carmen M. Reinhart and Vincent Raymond Reinhart

Comment: Joshua Aizenman
Discussion Summary

4. When Is U.S. Bank Lending to Emerging Markets Volatile?
Linda S. Goldberg

Comment: Simon Johnson
Discussion Summary

5. The Role of Large Players in Currency Crises
Giancarlo Corsetti, Paolo Pesenti and Nouriel Roubini

Comment: Jaume Ventura
Discussion Summary

6. Contagion: How to Measure It?
Roberto Rigobon

Comment: Enrique B. Mendoza
Discussion Summary

7. Credit, Prices, and Crashes: Business Cycles with a Sudden Stop
Enrique G. Mendoza

Comment: Joshua Aizenman
Discussion Summary

III. Capital Controls: The Malaysian Experience

8. Did the Malaysian Capital Controls Work?
Ethan Kaplan and Dani Rodrik

Comment: Liliana Rojas-Suarez
Discussion Summary

9. Malaysia’s Crisis: Was It Different?
Rudi Dornbusch

Comment: Michael P. Dooley
Discussion Summary

IV. Balance Sheets and "Crony Capitalism"

10. Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises
Shang-Jin Wei and Yi Wu

Comment: Martin Feldstein
Discussion Summary

11. Domestic Bank Regulation and Financial Crises: Theory and Empirical Evidence from East Asia
Robert Dekle and Kenneth Kletzer

Comment: Paolo Pesenti
Discussion Summary

12. Dollarization of Liabilities, Net Worth Effects, and Optimal Monetary Policy
Luis Felipe Céspedes, Roberto Chang, and Andrés Velasco

Comment: Nouriel Roubini
Discussion Summary

13. Chaebol Capitalism and the Currency-Financial Crisis in Korea
Anne O. Krueger and Jungho Yoo

Comment: Jorge Braga de Macedo
Discussion Summary

14. Living with the Fear of Floating: An Optimal Policy Perspective
Amartya Lahiri and Carlos A. Végh

Comment: Eduardo Borensztein
Discussion Summary

15. Policy in an Economy with Balance Sheet Effects
Aaron Tornell

Comment: Charles W. Calomiris
Discussion Summary

V. Overview

16. A Primer on Emerging-Market Crises
Rudi Dornbusch

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