Good-bye financial repression, hello financial crash

Abstract

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The Twin Crises: The Causes of Banking and Balance-of-Payments Problems

“…The probability of a currency crisis conditioned on the beginning of bankingsector problems is 46 percent, well above the unconditional estimate of 29 percent. Hence, it Díaz-Alejandro (1985) and Velasco (1987) did for the Chilean crisis in the early 1980's, that, in an important number of cases, the bailout of the banking system may have contributed to the acceleration in credit creation observed prior to the currency crises (see Herminio Blanco and Peter M. Garber, 1986;Sebastian Edwards, 1989;Eichengreen et al, 1996b;and this paper). Even in the absence of a large-scale bailout, a frail banking system is likely to tie the hands of the central bank in defending the currency-witness Indonesia in August 1997.…”

“…Notable exceptions are: Carlos F. Díaz-Alejandro (1985), Andres Velasco (1987), Calvo (1995), , and Victoria Miller (1995). As to the empirical evidence on the potential links between what we dub the twin crises, the literature has been entirely silent.…”

Optimal Development Policies with Financial Frictions

“…Hence, our exclusive focus on ς k is without loss of generality. Credit and capital subsidies are, arguably, a natural tax instrument to address the financial friction, and they have been an important element of real world industrial policies (see McKinnon, 1981;Diaz-Alejandro, 1985;Leipziger, 1997).…”

ACHIEVING SOCIAL OBJECTIVES THROUGH PRIVATE TRANSFERS: A Review

“…The increase in foreign borrowing associated with the misalignment of the real exchange rate produced an enormous increase in financial liabilities of the banking system backed by assets of dubious quality. These developments finally led to very severe financial crises (Diaz-Alejandro 1985). For example, in Chile as late as 1987 the central bank held a stock of nonperforming loans amounting to 26 percent of its total assets as a result of the government's engagement in a massive rescue operation for troubled financial institutions (Arellano 1988).…”