The Library
Asset bubbles, domino effects and 'lifeboats': elements of the East Asian crisis
Tools
Edison, Hali J., Luangaram, Pongsak and Miller, Marcus (1998) Asset bubbles, domino effects and 'lifeboats': elements of the East Asian crisis. Working Paper. Coventry: University of Warwick. Centre for the Study of Globalisation and Regionalisation. Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) (No.05/).
|
PDF
WRAP_Miller_wp0598.pdf - Requires a PDF viewer. Download (518Kb) |
Official URL: http://www2.warwick.ac.uk/fac/soc/csgr/research/wo...
Abstract
Credit market imperfections have been blamed for the depth and persistence of the Great Depression in the USA. Could similar mechanisms have played a role in ending the East Asian miracle? After a brief account of the nature of the recent crisis, we use a model of highly levered credit-constrained firms due to Kiyotaki and Moore (1997) to explore this question. As applied to land-holding property companies, it predicts greatly amplified responses to financial shocks – like the ending of the land price bubble or the fall of the exchange rate. The initial fall in asset values is followed by the ‘knock-on’ effects of the scramble for liquidity as companies sell land to satisfy their collateral requirements – causing land prices to fall further. This could lead to financial collapse where – like falling dominoes – prudent firms are brought down by imprudent firms.
Key to avoiding collapse is the nature of financial stabilisation policy; in a crisis, temporary financing can prevent illiquidity becoming insolvency and launching ‘lifeboats’ can do the same. But the vulnerability of financial systems like those in East Asia to short-term foreign currency exposure suggests that preventive measures are also required.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
---|---|---|---|---|---|
Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance D History General and Old World > DS Asia |
||||
Divisions: | Faculty of Social Sciences > Economics Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation |
||||
Library of Congress Subject Headings (LCSH): | Financial crises -- East Asia, Credit -- East Asia, Assets (Accounting), International liquidity, Bankruptcy -- East Asia | ||||
Series Name: | Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) | ||||
Publisher: | University of Warwick. Centre for the Study of Globalisation and Regionalisation | ||||
Place of Publication: | Coventry | ||||
Official Date: | February 1998 | ||||
Dates: |
|
||||
Number: | No.05/ | ||||
Number of Pages: | 37 | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) |
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |
Downloads
Downloads per month over past year