TY  - JOUR
AU  - Sachs,Jeffrey
AU  - Tornell,Aaron
AU  - Velasco,Andres
TI  - Financial Crises in Emerging Markets: The Lessons from 1995
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5576
PY  - 1996
Y2  - May 1996
UR  - http://www.nber.org/papers/w5576
L1  - http://www.nber.org/papers/w5576.pdf
N1  - Author contact info:
Jeffrey D. Sachs
The Earth Institute at Columbia University
314 Low Library
535 West 116th Street, MC 4327
New York, NY  10027
Tel: 212/854-8704
Fax: 212/854-8702
E-Mail: sachs@columbia.edu

Aaron Tornell
Department of Economics
UCLA
405 Hilgard Ave, Bunche Hall #8283
Los Angeles, CA  90095-1477
Tel: 310/794-1686
Fax: 310/825-9528
E-Mail: tornell@econ.ucla.edu

Andres Velasco
Marne 2962
Las Condes.
Santiago
CHILE
Tel: 56983616001
E-Mail: avbranes@gmail.com
AB  - In this paper we examine closely the financial events following the Mexican peso devaluation to uncover new lessons about the nature of financial crises.  We explore the question of why, during 1995, some emerging markets were hit by financial crises while others were not.  To this end, we ask whether there are some fundamentals that help explain the variation in financial crises across countries or whether the variation just reflects contagion.  We present a simple model identifying three factors that determine whether a country is more vulnerable to suffer a financial crisis: a high real exchange rate appreciation, a recent lending boom, and low reserves.  We find that for a set of 20 emerging markets, differences in these fundamentals go far in explaining why during 1995 some emerging markets were hit by financial crises while others were not.  We also find that alternative hypotheses that have been put forth to explain such crises often do not seem to be supported by the data, such as high current account deficits, excessive capital inflows and loose fiscal policies.
ER  -