TY  - JOUR
AU  - Chinn,Menzie D.
AU  - Kletzer,Kenneth M.
TI  - International Capital Inflows, Domestic Financial Intermediation and Financial Crises under Imperfect Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7902
PY  - 2000
Y2  - September 2000
UR  - http://www.nber.org/papers/w7902
L1  - http://www.nber.org/papers/w7902.pdf
N1  - Author contact info:
Menzie D. Chinn
Dept. of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-7397
Fax: 608/262-2033
E-Mail: mchinn@lafollette.wisc.edu

Kenneth Kletzer
University of California, Santa Cruz
Department of Economics
217 Social Sciences 1
Santa Cruz, CA  95064
Tel: 408-459-3407
E-Mail: kkletzer@cats.ucsc.edu
AB  - A model of financial crises in emerging markets based on problems of agency in financial intermediation is developed. This model generates dynamic relationships between foreign capital inflows, domestic investment and domestic bank debt in an endogenous growth model. As a consequence of loan renegotiation between limited liability banks and firms, financial crises inevitably occur. Banking and currency crises are concurrent events under an exchange rate peg combined with deposit insurance and implicit government guarantees of foreign currency loans. The model links high pre-crisis growth rates, the accumulation of bank debt and increasing concentration of domestic lending and investment to the anticipation of contingent government insurance of private financial transactions. The dynamics of capital inflows and growth before and after a financial crisis are compared to the experience of the Asian crisis countries. We find evidence consistent with this agency model of domestic bank intermediation of foreign capital inflows under exchange rate pegs.
ER  -