Work

Strategic Complementarities and the Twin Crises

Year: 2005

Type: article

Abstract: The economic literature emphasised the role of strategic complementarities in generating banking crises and currency crises. Motivated by evidence from recent financial crises, we study a model, where strategic complementarities exist, not only within a group of creditors or within a group of currency speculators, but also between the two groups. The additional type of complementarities generates a vicious circle between banking crises and currency crises. This magnifies the correlation between the two crises and destabilises the economy. We show that, due to the vicious circle, a Lender of Last Resort might not be able to prevent bank runs.

Source: The Economic Journal

DOI: 10.1111/j.1468-0297.2005.00993.x

Author: Itay Goldstein

Institution: University of Pennsylvania

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2128679884

FWCI: 9.108

Cites: 43

Cited by: 95

Related to: 10