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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
A model of crises in emerging markets
Michael P. Dooley
Abstract

This paper presents a "first generation" model of speculative attacks on emerging markets. Credit-constrained governments accumulate liquid assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets. Given this policy regime, a variety of internal and external shocks generate capital inflows followed by anticipated speculative attacks. The model suggests that a common shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country-specific factors determined the timing of speculative attacks. Economic reform programs may also have generated capital inflow/crisis sequences.


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Michael P. Dooley, A model of crises in emerging markets, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 630, 1998.
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Keywords: Econometric models ; Banking market ; Risk
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