ABSTRACT
Paul Krugman argues that the Asian crisis is not readily understood within the conceptual framework of “standard currency crises models” (Krugman 1998: 1). A year or two before the Thai crisis, some economists (including Krugman himself) had “raised warning fl ags”, but what they expected was a “conventional currency crisis followed by a modest downturn”—by no means the “much more drastic . . . collapses in domestic asset markets, widespread bank failures, bankruptcies on the part of many fi rms, and . . . severe real downturn” (ibid.). Nor had any of these observers expected, Krugman notes, that the crisis could spread from Thailand throughout and beyond East Asia. In Krugman’s view, the key to understanding this failure to grasp the severity of what was coming was that Thailand’s problems were conceived in terms of standard currency crises models. Only by understanding the ways in which the Thai crisis went far beyond a standard currency crisis may we begin to understand also, Krugman argues, the process and logic by which the crisis spread to fi rst other East Asian countries, and then beyond the region, to Russia and Brazil.
