PDF Ebook Currency Crises in Emergent Markets and Minsky Financial Fragility Theory: Is There a Link?
The world has suffered several currency crises since the end of Bretton Woods. Each time researchers have made a strong effort to understand what happened and what could be done to avoid new crises. Further, with each major crisis a new generation of models has been created to explain what is going on, as well as the policy implications. The subject is of interest to many macro economists. The NBER, for example, keeps the “NBER project on Exchange Rate Crises in Emerging Market Countries,” that contains a list of working papers and books prepared for conferences on the subject. The area is still open to different interpretations and economists have not reached a consensus. This frustrates economists, and in particular policy makers, in search for a solution. As Rodrik (1998) points out, at each new crisis a new generation of model is needed, given that the previous proved hardly adequate. More recently Jeanne (2000) concludes that the analysis of the literature on currency crises make it is possible to generalize that it is difficult to predict a new crisis, based on economic fundamentals. In this paper I propose an alternative framework for explain currency crises formulating the following question: does Minsky financial instability help explain, at a macroeconomic level, what trigger currency crises?
I adapt Minsky’s financial instability theory to study the open economic environment, focusing on the macro variables of emerging market economies. I will show that this approach helps to analyze and explain the dynamics of currency crises, particularly the events surrounding these crises.
I adapt Minsky’s financial instability theory to study the open economic environment, focusing on the macro variables of emerging market economies. I will show that this approach helps to analyze and explain the dynamics of currency crises, particularly the events surrounding these crises.
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