Modering Financial Fragility In Transition Economies

Arbeitspapier

Capital inflows have an enormous importance in the financing of investment in emerging and transition economies. However short-term inflows, intermediated by the banking sector of the emerging economy, may be subject to early withdrawals. We model a situation where such withdrawals are motivated by a change in either the domestic or the foreign fundamentals. We show that, for a given change in fundamentals, a reversal in the capital flows (and hence a currency crisis) is more likely the more risk averse are the foreign investors into the emerging economy. We also show that a policy to tax early withdrawals may discourage capital inflows which are more likely to give rise to fundamental runs, by helping to select relatively less risk averse investors. However, such a policy would have to be fine tuned in order not to discourage all capital inflows.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 99.03

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Fiscal and Monetary Policy in Development
• Subject: Short-term capital inflows ; Currency crisis ; Financial Fragility ; Chilean tax

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Nilsen, Jeffrey H. ; Rovelli, Riccardo
• Event: Veröffentlichung
• (who): Swiss National Bank, Study Center Gerzensee
• (where): Gerzensee
• (when): 1999

Further information

• Handle: http://hdl.handle.net/10419/127984
• Last update: 10.03.2025, 11:43 AM CET