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Preventing Currency Crises in Emerging Markets$
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Sebastian Edwards and Jeffrey A. Frankel

Print publication date: 2002

Print ISBN-13: 9780226184944

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226185057.001.0001

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A Primer on Emerging-Market Crises

A Primer on Emerging-Market Crises

(p.743) 16 A Primer on Emerging-Market Crises
Preventing Currency Crises in Emerging Markets
Rudi Dornbusch
University of Chicago Press

This chapter describes the most important features of recent financial and currency crises in emerging countries. Crises are financial experiences, and they involve large and lasting social costs and important redistribution of income and wealth. The capital account plays a key role in the run-up to the crisis and in its unfolding. The central part of the new-style crisis is the focus on balance sheets and capital flight. Contamination easily fits the pattern of balance sheets that are bad enough to invite an accident. Currency crises are expensive; even more so is a history of recurrent crises. A currency crisis spreads wealth and income. There is agreement that the better strategy is to decrease the risk of a crisis situation, including means such as predetermined limits on liquidity and profitability, but that leaves open the question of what to choose in the midst of a crisis: IMF or controls.

Keywords:   currency crises, income, wealth, balance sheets, capital flight, liquidity, profitability

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