Financial Crisis: How And Why It Happens
Financial Crises: How and Why and Lessons
Recent Major Financial Crises
1980's: Debt crisis for developing countries (Latin America and Africa)
1992: European Exchange Rate Mechanism (especially UK and Sweden)
1994-95: Mexico (Tequila crisis) and Argentina
1997-98: Asian financial crisis (Thailand, Indonesia, Korea, Philippines, Malaysia)
1998: Russia
1999: Brazil
2000-02: Turkey
2001-02: Argentina (again)
Nature of Financial Crises
Exchange rate crises
Sudden, drastic depreciation of the country's currency
Banking crises
Depositors lose confidence (disintermediation)
Banks can't perform lending function
Effects
Severe recession, due to:
Collapse of bank loans
Reduction in consumer demand
Higher interest rates
Inflation, due to:
Higher import costs
Causes of Financial Crises:
1. Macroeconomic Imbalances
Where: Russia 1999, Brazil 1999, Turkey 2000, Argentina 2001
Characteristics of......
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