ABSTRACT

In this final chapter on international finance in emerging market economies we return to the topic of financial crises. As emerging economies have liberalized and globalized, they have gained significant benefits in terms of financial development and economic growth. But these gains from financial openness have come at the cost of increased financial and macroeconomic volatility, not only in the form of sovereign debt crises, asset bubbles, and banking crises, which we have already discussed. There also appears to be some increase in the frequency of currency crises, or a large and rapid depreciation in the exchange rate typically associated with sudden foreign capital flight. Many of these currency crises have occurred in conjunction with banking crises in what is referred to as a twin crisis. Figure 8.1 presents data on the number of banking crises, currency crises, sovereign debt crises, and twin crises for all countries between 1970 and 2007 broken into two periods. We can see that while there has been a decline in sovereign debt crises in the latter period, banking, currency, and twin crises each appear to have become more common. This increase in the number of crises would be even more dramatic if this figure included crises that occurred during the global financial crisis in 2008 and 2009. Frequency of financial crises. https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780203068229/a2cb36f3-0ede-4cf4-872f-4333d867c1a8/content/fig8_1_B.jpg" xmlns:xlink="https://www.w3.org/1999/xlink"/>