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iDEA: Drexel E-repository and Archives > Drexel Academic Community > Bennett S. LeBow College of Business > Department of Economics & International Business > Faculty Research and Publications (Economics & International Business) > Twin crises in emerging markets: The role of liability dollarization and imperfect competition in banking

Please use this identifier to cite or link to this item: http://hdl.handle.net/1860/1835

Title: Twin crises in emerging markets: The role of liability dollarization and imperfect competition in banking
Authors: Luca, Alina C.
Olivero, Maria Pia
Keywords: Devaluation;Twin crises;Balance sheet effects;Liability dollarization;Imperfect competition;Product differentiation
Issue Date: Apr-2007
Citation: Paper presented at the Spring 2007 Midwest Theory and Trade Meetings, Minneapolis-St. Paul, MN.
Abstract: Recent currency crises in emerging markets have been accompanied by banking crises, with concentration in the market for bank credit increasing after large devaluations. In this paper we study the role of imperfect competition and liability dollarization in banking in shaping the real effects of twin crises. We do so by introducing currency mismatches in a modified version of the Schargrodsky and Sturzenegger (2000) model of imperfect competition in the banking industry with endogenous product differentiation, and then embedding it in an otherwise standard general equilibrium model of a small open economy. We show that both imperfections-currency mismatches and imperfect competition in banking-can generate a banking crisis in the presence of an exogenous currency crisis. We then discuss the contribution of each distortion to the magnitude of crises.
URI: http://hdl.handle.net/1860/1835
Appears in Collections:Faculty Research and Publications (Economics & International Business)

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