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on Financial Development and Growth |
| By: | García-Fronti, Javier; Miller, Marcus; Zhang, Lei |
| Abstract: | The stylised facts of currency crises in emerging markets include output contraction coming hard on the heels of devaluation, with a prominent role for the adverse balance-sheet effects of liability dollarisation. In the light of the South East Asian experience, we propose an eclectic blend of the supply-side account of Aghion, Bacchetta and Banerjee (2000) with a demand recession triggered by balance sheet effects (Krugman, 1999). This sharpens the dilemma facing the monetary authorities - how to defend the currency without depressing the economy. But, with credible commitment or complementary policy actions, excessive output losses can, in principle, be avoided. |
| Keywords: | contractionary devaluation; financial crises; Keynesian recession; supply and demand shocks |
| JEL: | E12 E4 E51 F34 G18 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5905&r=fdg |
| By: | Gary Richardson |
| Abstract: | During the contraction from 1929 through 1933, the Federal Reserve System tracked changes in the status of all banks operating in the United States and determined the cause of each bank suspension. This essay introduces that hitherto dormant data and analyzes chronological patterns in aggregate series constructed from it. The analysis demonstrates both illiquidity and insolvency were substantial sources of bank distress. Contagion (via correspondent networks and bank runs) propagated the initial banking panics. As the depression deepened and asset values declined, insolvency loomed as the principal threat to depository institutions. These patterns corroborate some and question other conjectures concerning the causes and consequences of the financial crisis during the Great Contraction. |
| JEL: | E42 E5 E65 N1 N12 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12590&r=fdg |