Lessons from a comparative analysis of financial crises.pdfVIP

Lessons from a comparative analysis of financial crises Roberto Frenkel Principal Research Associate at CEDES and Professor, Buenos Aires and Torcuato Di Tella Universities. Presentation prepared for the IEA-AAEP roundtable “Las Crisis de Deuda y su Resolución” August 13-14, 2012. Facultad de Ciencias Economicas de la Universidad de Buenos Aires. Buenos Aires, Argentina. The set of crises Two waves of financial crises in EMEs. The first: all Latin American region in the early eighties. The second wave: 1995 Mexico; 1998 Brazil; 2001-2002 Argentina and Uruguay; 1997-1998 five economies in East Asia and Russia. Each wave was preceded by booms of capital inflows to developing countries. The crises in the Eurozone. US crisis: initial impacts of the contagion. Further developments in the peripheral EZEs (Greece, Ireland and Portugal), Spain and Italy (GIIPS) started around April 2010. The Minskyan cycle The Minskyan cycle is observed everywhere Financial crises in the EMEs and the EZEs exhibited Minskyan features similar to those verified in the US economy in the 2000s. Crises were always preceded by booming periods in which financial activity expanded and risk taking increased. Analysis of the range suggests that these crises emerged as the culmination of the same processes that caused a growing optimism and encouraged greater risks taking in the boom phase. Stylized facts shared by the crises in EMEs and EZEs 1. The booming phase in EMEs generated by drastic changes in macroeconomic policies and regulations. Liberalization of the capital account and local financial markets. Some sort of exchange rate fixation (pegs or active crawling - pegs). The booming phase in the EZEs also resulted from a drastic change in macroeconomic po