Financial crises and political crises
By: Roberto Chang.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11779; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11779.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Financial crises -- Political aspects -- Mathematical models.; Political stability -- Economic aspects -- Mathematical models.
Description: "This paper is an analysis of the simultaneous determination of financial default and political crises and its consequences.  It focuses on a small open economy that faces a debt default decision.  Crucially, this decision is made by a government that has superior information than the public about the social costs of default.  Citizens can dismiss the government, and overrule its default decision, at the cost of a political crisis.  If there is a divergence between the objectives of the government and its people, a political crisis may emerge in equilibrium.  For this to be the case, the foreign debt must be large enough, and international reserves low.  When this political equilibrium is seen as a part of a larger investment problem, there are equilibria in which crises are "only financial," and equilibria in which both default and political crises occur.  In some cases, these two kinds of equilibria coexist and, in this sense, a loss of confidence by foreign lenders can exacerbate the likelihood of a political crisis.  If so, international intervention in financial markets may ensure financial and political stability at little cost"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 12/15/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.