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International Capital Flows in Calm and Turbulent Times

The Need for New International Architecture

Stephany Griffith-Jones, Ricardo Gottschalk, and Jacques Cailloux, Editors

Publication Year: 2003

International Capital Flows in Calm and Turbulent Times analyzes the financial crises of the late 1990s and draws attention to the type of lenders and investors that triggered and deepened the crises. It concentrates on institutional investors and banks and provides detailed analysis of the countries most affected by the 1997-98 Asian financial crisis as well as the Czech Republic and Brazil. It also suggests necessary international financial reforms to make crises less likely. The book is unique in its scrutiny of the type of lenders and investors that triggered and deepened the crises, focusing particularly on institutional investors and banks; allocation of their assets; the criteria used in this process; and the impact of the nature of the investor on the volatility of different types of capital flow. It addresses such questions as: What determines or triggers massive changes in perceptions and sentiment by different investors and leaders? To what extent does contagion spread not just among countries but between actors? What are the policy implications of this analysis? The book concludes by examining the asymmetries in the financial architecture discussions and implementation and by offering policy proposals.

Published by: University of Michigan Press

Contents

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pp. v-

List of Figures

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pp. vii-ix

List of Tables

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pp. xi-xiii

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Preface

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pp. xv-xix

The frequency, severity, and high development cost of currency and financial crises-which hit mainly developing countries during the 1990s-posed a key challenge, both to those who support the spreading and deepening of the market economy through globalization and to those concerned with reducing poverty worldwide. For the ...

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1. Global Capital Flows to East Asia: Surges and Reversals

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pp. 1-28

Recent major currency crises in developing countries (and particularly those in Mexico in 1994-95 and East Asia in 1997-98) had three main characteristics. First, they were very sudden and very large, as measured by the scale of the capital flow reversal, by the size of the devaluation, and by the initial cost in terms of decreases in output and increases ...

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2. The Role of Mutual funds and Other International Investors in Currency Crises

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pp. 29-48

As we have seen in chapter I, the key source of the reversals of capital flows that triggered the Asian crisis was bank loans. However, portfolio flows also played an important, if more secondary, role, representing 27 percent of the reversal of flows during the crisis, that is, between 1996 and 1998, according to International Monetary Fund (IMF) ...

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3. International Bank Lending and the East Asian Crisis

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pp. 49-74

As was discussed in chapter I, the proximate cause of the crises in East Asia was a sharp reversal in capital flows, and the dominant category in the reversal of these flows was bank credits, which represented 92 percent of the outflows in the four most affected countries during 1997 and 1998 and 72 percent of the reversals between 1996 and 1998 (see table 1.2 in chap. 1). ...

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4. Foreign Capital Flows to Thailand: Determinants and Impact

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pp. 75-106

Before 1997, relatively low yields in industrial countries together with impressive economic growth and attractive returns in developing economies motivated Western investors to relocate their funds to money and capital markets in the East. This corresponded well with the trend toward trade globalization, international financial linkages, and expansion ...

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5. Capital Flows into and from Malaysia

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pp. 107-161

Together with several other economies in Southeast Asia, led by Thailand, Malaysia experienced a currency crisis in mid-1997, which in turn precipitated a financial crisis and eventually led to a severe recession in 1998, after almost a decade of rapid economic growth and industrialization. There have been many competing explanations for these ...

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6. The Recent Economic Crisis in Indonesia: Causes, Impacts, and Responses

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pp. 162-194

The crisis that hit Indonesia in the late 1990s was a combination of political and economic crises. The economic crisis itself was to an important extent a financial crisis in that it was a mix of banking and external debt crises that was mainly centered around private sector debt. This chapter argues that this financial crisis was caused by a number of ...

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7. Who Destabilized the Korean Stock Market?

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pp. 195-230

A number of recent empirical studies provide some evidence that foreign portfolio investors in emerging financial markets have been engaged in positive feedback trading: buying when the market is booming and selling when it is slumping. These same studies suggest that foreign investors exhibit herd behavior. This behavior set, regardless ...

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8. The Currency Shake-up in 1997: A Case Study of the Czech Economy

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pp. 231-266

The last decade of the departing twentieth century will enter the history of the world economy as a period of increased instability of financial markets, contributing to major declines in the output of emerging market economies. Observers or analysts may find the truly global nature of the mentioned phenomena fascinating. While formerly ...

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9. The Swings in Capital Flows and the Brazilian Crisis

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pp. 267-290

During the 1990s, Brazil experienced a complete cycle of capital flows. First, like many other developing countries Brazil experienced a surge in capital inflows that was initially praised for eliminating a decade of restricted borrowing. Second, the new flows seemed overwhelming and led to the introduction of a variety of controls over capital ...

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10. The Financial Crises of the Late 1990s: Summary and Policy Lessons

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pp. 291-309

This chapter summarizes the main empirical insights of the book. It draws particularly from the six case studies presented, which cover the East Asian countries most affected by the 1997-98 East Asian financial crisis (Indonesia, Malaysia, South Korea, and Thailand) plus the Czech Republic and Brazil, with a focus primarily on the role of international ...

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11. Key Elements for a New International Financial Architecture

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pp. 310-336

The recent wave of currency and banking crises that began in East Asia and then spread to many other emerging markets (as described in depth in previous chapters) and even threatened briefly to spill over to the United States in the wake of Russia and Long Term Capital Management (LTCM)-generated a broad consensus that fundamental ...

Contributors

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pp. 337-338

Index

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pp. 339-352


E-ISBN-13: 9780472024827
E-ISBN-10: 0472024825
Print-ISBN-13: 9780472113095
Print-ISBN-10: 0472113097

Page Count: 376
Illustrations: 67 drawings, 90 tables
Publication Year: 2003

Series Title: Development and Inequality in the Market

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Subject Headings

  • Financial crises -- Developing countries.
  • Financial crises.
  • International finance.
  • Capital movements.
  • Capital movements -- Developing countries.
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