Abstract
In a world of high capital mobility, the threat of speculative attack becomes a central issue of macroeconomic policy. While “first-generation” and “second-generation” models of speculative attacks both have considerable relevance to particular financial crises of the 1990s, a “third-generation” model is needed to make sense of the number and nature of the emerging market crises of 1997–98. Most of the recent attempts to produce such a model have argued that the core of the problem lies in the banking system. This paper sketches another candidate for third-generation crisis modeling—one that emphasizes two facts that have been omitted from formal models to date: the role of companies’ balance sheets in determining their ability to invest, and that of capital flows in affecting the real exchange rate.
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© 1999 Springer Science+Business Media New York
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Krugman, P. (1999). Balance Sheets, the Transfer Problem, and Financial Crises. In: Isard, P., Razin, A., Rose, A.K. (eds) International Finance and Financial Crises. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-4004-1_2
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DOI: https://doi.org/10.1007/978-94-011-4004-1_2
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