International Tax and Public Finance

, Volume 6, Issue 4, pp 459–472 | Cite as

Balance Sheets, the Transfer Problem, and Financial Crises

  • Paul Krugman
Article

Abstract

In a world of high capital mobility, the threat of speculative attack becomes a central issue of macroeconomicpolicy. While “first-generation” and “second-generation” models of speculative attacks both have considerablerelevance to particular financial crises of the 1990s, a “third-generation” model is needed to make sense of thenumber and nature of the emerging market crises of 1997-98. Most of the recent attempts to produce such amodel have argued that the core of the problem lies in the banking system. This paper sketches another candidatefor third-generation crisis modeling—one that emphasizes two facts that have been omitted from formal modelsto date: the role of companies' balance sheets in determining their ability to invest, and that of capital flows inaffecting the real exchange rate.

currency crises balance sheets capital flows 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Bernanke, Ben, Mark Gertler, and Simon Gilchrist. (forthcoming). “The Financial Accelerator in a Quantitative Business Cycle Framework.” In J. Taylor and M. Woodford (eds.), Handbook of Macroeconomics.Google Scholar
  2. Chang, Roberto, and Andres Velasco. (1998). “Financial Crises in Emerging Markets: A Canonical Model.” NBER Working Paper No. 6606.Google Scholar
  3. Corsetti, Giancarlo, Paolo Pesenti, and Nouriel Roubini. (1998). “Paper Tigers? A Model of the Asian Crisis.” Mimeo.Google Scholar
  4. Diamond, Douglas, and Philip Dybvig. (1983). “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91 401–419.Google Scholar
  5. Eichengreen, Barry, Andrew Rose, and Charles Wyplosz. (1995). “Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks.” Economic Policy, 251–312.Google Scholar
  6. Flood, Robert, and Peter Garber. (1984). “Collapsing Exchange Rate Regimes: Some Linear Examples.” Journal of International Economics 17, 1–13.Google Scholar
  7. Kiyotaki, Nobuhiro, and John Moore. (1997). “Credit Cycles.” Journal of Political Economy 105, 211–248.Google Scholar
  8. Krugman, Paul. (1979). “A Model of Balance-of-Payments Crises.” Journal of Money, Credit, and Banking 11, 311–325.Google Scholar
  9. Krugman, Paul. (1996). “Are Currency Crises Self-Fulfilling?” In B. Bernanke and J. Rotemberg (eds.), NBER Macroeconomics Annual 1996. Cambridge: MIT Press.Google Scholar
  10. Krugman, Paul. (1998). “What Happened to Asia?” Mimeo, MIT.Google Scholar
  11. McKinnon, Ronald, and Huw Pill. (1996). “Credible Liberalizations and International Capital Flows: The 'Overborrowing Syndrome.'“ In T. Ito and A. Krueger (eds.), Financial Deregulation and Integration in East Asia. Chicago: University of Chicago Press.Google Scholar
  12. Obstfeld, Maurice. (1994). “The Logic of Currency Crises.” Cahiers economique et monetaires 43, 189–212.Google Scholar
  13. Radelet, Steven, and Jeffrey Sachs. (1998). “The Onset of the East Asian Financial Crisis.” Mimeo.Google Scholar

Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Paul Krugman
    • 1
  1. 1.MITDepartment of EconomicsCambridge

Personalised recommendations