Yliopiston etusivulle Suomeksi På svenska In English Helsingin yliopisto

Economic crises, exchange rate policy and bailing out

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Use this URL to link or cite this item: http://hdl.handle.net/10138/10490
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Title: Economic crises, exchange rate policy and bailing out
Author: Natunen, Anu
Contributor: University of Helsinki, Department of Political Science
Thesis level: Master's thesis
Abstract: The Asian crisis in 1997-98 was different to prior crises experienced in Europe (1992-93) and Mexico (1994-95). In the Asian crisis shock sensitivity seemed to be liked to financial weaknesses and other structural fragilities rather than weak macroeconomic fundamentals. Banks extended credits, enterprises were indebted with greater leverage and money was invested in the real estate even though investments’ output was not always productive. Credit availability increased as banks competed for customers, cutting back ex ante screening of projects and customer monitoring. Several researches have identified moral hazard caused by government bailout guarantees as the origin of the financial vulnerability in Asia at the time of crisis, explaining the irresponsible behavior of the corporate sector, banking sector, and investors. Due to the crisis’s microeconomic nature the traditional first- and second-generation currency crises models were not able to explain the Asian currency crisis and as a result third-generation models have emerged. This thesis aims to find answers to the following questions: (1) what was relevant in the Asian currency crisis, (2) when governments use exchange rates policies to bailout troubled companies, how can these bailout policies be explained theoretically, and (3) what other factors can affect the functionality of these exchange rate policies as bailout, when are they not a solution. In other words this paper presents an empirical and a theoretical approach to the Asian currency crisis and analyzes to what extent theoretical explanations are supported by empirical evidence. As a theoretical explanation to the Asian currency crisis this thesis presents a third-generation currency crises model by Bris and Koskinen (2002), based on an argument that bailing out financially distressed export companies through currency devaluation is optimal ex post for an economy. As a competing point of view to the model of Bris and Koskinen on the affect of devaluation on corporate sector, the paper presents a review of the theoretical work of Aghion et al. (2000) on currency crises, who argue that currency devaluation leads to further corporate balance-sheet deteriorating. Empirical evidence on the Asian currency crisis supports the implications of the model of Bris and Koskinen.
Description: Endast avhandlingens sammandrag. Pappersexemplaret av hela avhandlingen finns för läsesalsbruk i Statsvetenskapliga biblioteket (Unionsgatan 35). Dessa avhandlingar fjärrutlånas endast som microfiche.Abstract only. The paper copy of the whole thesis is available for reading room use at the Library of Social Sciences (Unioninkatu 35) . Microfiche copies of these theses are available for interlibrary loans.Vain tiivistelmä. Opinnäytteiden sidotut arkistokappaleet ovat luettavissa HY:n keskustakampuksen valtiotieteiden kirjastossa (Unioninkatu 35). Opinnäytteitä lainataan ainoastaan mikrokortteina kirjaston kaukopalvelun välityksellä
URI: http://hdl.handle.net/10138/10490
Date: 2002-09-23
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